The renewed popularity of auto leasing doesn't surprise John Sternal, vice president of marketing for LeaseTrader.com, a company that helps people exit lease contracts early by matching them with someone willing to take over their contract. He says that there's so much interest in leasing currently that his company has four times more people wanting to take over leases than people wanting to give theirs up.
Sternal says leasing picked up as soon as the credit markets began to stabilize. He saw transactions on LeaseTrader climb from 60,000 in 2009 to 75,000 in 2010. Of course, some of the increased business is due to consumers who are drawn to the very short leases they can get by taking over the remaining term of someone else's contract.
Car leasing has become more appealing recently for at least two reasons, says Tarry Shebesta, president of LeaseCompare.com, which provides information and price quotes for leased-car shoppers. Leasing protects consumers from sudden dips in resale value, such as the big hit that SUVs took during the gas price spike of 2008. Also, the popularity of vehicle history reports means that any accident — no matter how minor — can kill resale value. Leasing protects consumers from poor resale values in both cases, he says.
The low-mile leases that have popped up recently can be good for consumers "as long as you know what you're getting into," Shebesta says. He described them as an effort by manufacturers to provide financial flexibility and cites Mercedes-Benz, which has a 7,500-miles-per-year lease on some of its models.
As the economy recovers, manufacturers are offering more lease specials that encourage shoppers to lease rather than buy. These specials — sometimes called "subvented leases" — are low-cost programs where the lease formula has been retooled to attract customers. Kinkade said Ally currently offers incentivized leases in the U.S. on 21 GM models and 15 Chrysler models.
One place that consumers can't expect to find subvented leases during the next few months will be among Japanese automakers, which are pulling back their incentives (including subvented lease deals), in the wake of production cuts forced by the March 11 earthquake and tsunami in Japan.
New leasing developments notwithstanding, the basics are unchanged. Experts recommend these tips for people considering a car lease:
- Don't let the car dealer push a lease with a term longer than 36 months. Beyond three years, you'll face the extra cost of an extended warranty or out-of-pocket payments for repairs.
- Remember that advertised lease payments do not include sales tax and fees. An advertised payment of $199 a month could easily be $216 or more. Over three years, this represents an extra $612.
- Don't be misled by very low monthly payments, since they will typically require high drive-off fees. Plan to put down about $1,000 to get started, even if you have to pay more each month.
- Verify the number of miles the lease allows (12,000 is the industry norm). Be realistic about whether this is enough. Remember, it's cheaper to buy more miles at the beginning of the lease than pay the penalty at the end.
- Make sure that you get gap insurance as part of the contract. Gap insurance, which covers the difference between what your car is worth and what the insurance company will pay if the car is totaled or seriously damaged in an accident, is included in most lease contracts.