Are Car Still Leases Being Offered?

Have questions about the vehicle leasing or lease-end buyouts? Schedule a consultation with a vehicle title expert!

New car leasing used to be a highly desirable sales method for new car dealers and manufacturers. This was because it promoted brand loyalty, meaning that at the end of the lease, the driver was likely to return the car to the dealer it was leased from, or at least the same type of dealer, and perhaps look at another car. Additionally, it was an effective way to offer discounts without appearing to be selling at bargain basement prices.

For example, if someone was buying a brand-new car and saw a $2,000 rebate advertised on the window, they might think that the car is not desirable. However, if that $2,000 was applied to the lease deal, it would still be a discount, resulting in a lower payment. The buyer would not perceive it as a “blue light special” at Kmart.

Why is leasing not as desirable now? There are a couple of reasons. Firstly, dealers and manufacturers do not need to offer many discounts because there is an inventory shortage. Secondly, resale values are uncertain. With a lease, the payment is determined by the future value of the vehicle as well as the selling price. This means that you pay the selling price minus what the dealer thinks the value will be in three or four years, depending on the length of the lease. The difference is what you pay in lease payments.

For example, if you have a $40,000 car and in three years, the dealer thinks it will be worth $20,000, then the $20,000 difference is what you pay for the lease payments. At the end of the lease, you have to return the car, and the dealer gets their $20,000 back. Right now, there is uncertainty about what cars will be worth in three years, particularly with the emergence of electric vehicles. As a result, lease deals are not as appealing.

However, manufacturers and dealers still like to lease vehicles because it is easier to sell customers on payments rather than price, and they can offer more discounts through leases without appearing to be giving away too much.

If you’re a buyer, what should you do? If you currently have a lease vehicle, consider buying it out at the end of the lease. Look at the residual value and compare it to the market value. You may find that you have a great deal on the car. Even if you don’t want to keep it, you may be able to trade it in and use that equity towards your next vehicle.

If you’re looking at new vehicles, compare lease payments with finance payments. Remember that on a lease, you have a shorter term, usually three years. Why is that an advantage? It gives you an out at three years. With a five-year loan, you may end up owing more than the vehicle is worth in three years. If you lease a vehicle, you don’t have that problem. As long as the vehicle is in good condition and you haven’t gone over on miles, you can simply drop the keys on the counter and walk away.

Some people think that leasing is throwing away money because you’re just renting the car. However, on finance, you’re also just renting it until you get past three years. On a lease, you can still exercise your option to buy the vehicle and end up paying the same amount as you would on finance. Sometimes, if you add up all the payments on a lease, plus your buyout option at the end, it comes out to be less than if you finance it and pay five years’ worth of payments because there are hidden incentives built into the lease.

Be a smart consumer and compare all options. Don’t just go in blind and assume that leasing, financing, or paying cash is better. Consider that the dealer may do funny business with the prices to make one option more attractive. Get competitive quotes on all three options. If a dealer is not willing to give you quotes for cash, lease, and finance, walk away because they are not being transparent with you.

Leasing is not always the best option, but it’s not something to discard either. It may be the most appealing option for a particular vehicle. The downside is that if you lease a vehicle, mileage will count against you if you decide to turn the car in at the end of the lease. However, mileage will also count against you if you finance the vehicle and trade it in after three years. Cars with high mileage are worth less money, regardless of how you paid for the car.

Have questions about the vehicle leasing or lease-end buyouts? Schedule a consultation with a vehicle title expert!