Leasing Nets More Car for Monthly Dollar

Should I lease or buy isn’t as age-old a question as which came first, the chicken or the egg, but it undoubtedly has more application to your everyday life.  As vehicles get more sophisticated, complicated and expensive, leasing is increasingly seen as the right solution by those acquiring a new car.  These days one of every three vehicles is leased, and the key reason is very simple – leasing a vehicle enables you “to drive more car” for your monthly expenditure. 

The divide between the monthly payment on a vehicle lease compared to the monthly payment when financing a vehicle continues to widen, particularly as manufacturer’s suggested retail prices (MSRPs) and transaction prices continue to grow.  The contrast is most stark in case where the carmaker puts the vehicle on sale by offering a promotional lease that it subsidizes.  These “subvented” leases are the offers you usually see advertised on TV and online.  Choosing a vehicle with a low-cost lease is the best way to reap the advantages of today’s heavily competitive marketplace.

Swapalease.com, the nation’s largest online lease marketplace, analyzed monthly payment terms on some of today’s most popular leased vehicles and compared them to the monthly payments in a 60- and 72-month finance programs.  The 60-month loans carried a 3.50% interest rate and the 72-month loans were at 3.75%. The payment analysis reflects average down payment terms already baked into the deals for both the lease and finance offers.

The results are pretty stark and offer compelling evidence as to why so many consumers are opting to lease rather than buy.  For example, if you leased a Volkswagen Passat 1.8TS you'd pay $149 per month for 36 months. However, if you bought that same car and financed it for 60 months, your cost would be $360.94 each month.  If you financed it over a longer period of 72 months you'd still pay $308.16 each month.

The Volkswagen Passat is just one of more than a dozen vehicles Swapalease.com analyzed to point out the current monthly cost advantages of leasing instead of buying.  Among luxury cars, the monthly price differential is equally telling.  A Mercedes-Benz E300 4MATIC, a truly amazing luxury sedan, will cost $902.40/month over the course of a five-year (60-month) loan or $770.44/month over 72-months, but in a special 27-month, low-mileage (10,000 mile/year) lease, the monthly payment is just (?) $589.00.

The reliable Toyota Corolla is now being offered at $199/month on a 36-month, 12,000 mile-per-year lease. That same car is financed over 60 months would cost 301.36/month and over 72 months would cost $257.30. 

Looking for a luxury SUV?  The Acura MDX is currently being promoted with a 36-month, 10,000-mile-per-year lease with a monthly payment of $409.  Should you buy that same front-drive vehicle it would cost you $741.60 over 60 months or $633.16 over 72 months.

While the monthly payments are startlingly lower in the lease scenarios, it should be noted that leases bring with them no equity for the payer.  At the conclusion of the finance process (e.g. 60-months) the driver owns the vehicle.  That is why obtaining a vehicle with a promotional lease deal is especially valuable to people who like to drive a new car every three years or less.

Best Car Lease Deals This Month

If what you are seeking in life is the best car lease you can get, you might find exactly what you want this month. Consumers looking for an affordable car lease right are likely to find not only find a car to love but also a lease payment to love, according to data compiled by Wantalease.com, the nation’s first online marketplace for new auto lease deals.  The website says prices on most of today’s popular leases have held steady from last month, and last month’s lease deals were very favorable to the consumer. In all, 24 make-models (e.g. Honda Accord) maintained their monthly lease payments and terms from the previous month. For those shopping the economy end of the new-car market, 16 make-models are currently offered for $200/month or less, and three vehicles are currently offered for less than $150/month.

Among popular choices, the Honda Civic LX, Volkswagen Passat 1.8T S and Volkswagen Jetta S are all currently leasing for less than $150 per month on Wantalease.com. In fact, the Volkswagen Jetta S is now being leased at an eye-popping $109 per month, making it the most affordable lease vehicle for October.  At that price point, the Jetta S monthly lease payment has decreased in price by 5.78% since last month.

Looking for prestige at a bargain price?  Three “entry-level” luxury cars are currently offered at less than $300/month. The Audi A3 2.0T FWD Premium and the Lexus IA 200t (turbo) are DT Editors’ favorites and both are priced at $299/month. If 300 bucks is too rich for your blood, the Acura ILX small sedan is currently being leasing at $199 per month, the same price it has maintained since August of this year.  The softening car market and some weakness in Acura sales has prompted the continuing “sale” on the ILX.

The Ram 1500 Express Crew Cab 4X4 with the 5'7'' cargo box was the vehicle that saw the largest price drop in October. If you are looking for a lot of vehicle for your money, it is currently offered at $189/month. That represents a whopping 39.58% decrease in price compared to last month, making it the most affordable vehicle in the large pickup segment. On the other side of the ledger, the Toyota Corolla SE compact sedan saw the largest increase in monthly payment.  The $199/month lease payment represents a18.65% increase versus the September payment.

“Prices on popular leased vehicles are remaining steady as we head into fall,” said Scot Hall, executive vice president of Wantalease.com. “As the holiday season approaches, as well as end-of-year deals, more dealers will try to find ways to attract lease shoppers looking for presents for loved ones or just a good deal on a vehicle to close out 2017.”

The Trade Off with Long Car Loans

You have just test-driven a brand-new car, and you’re convinced that it is just the car for you.  You’re all ready to make it your own.  Your credit is pretty good, and your monthly income is steady and seems secure.  But then you hear that the monthly payment for a conventional $25,000 four-year loan will be $550 at a 3.5% interest rate.  You gulp and tell the salesman your budget can’t quite accommodate a monthly payment that big.

“Don’t worry,” he says. “What can you fit in your budget?  How about $380 a month?  Is that okay?”

You gulp again, but this time you do some mental figuring and decide yeah, I can pay $380 a month.  “It’ll be a stretch,” your inner voice tells you, “but it’ll be worth it.”

So how did the $550 payment drop to $380?  It wasn’t magic.  The salesperson simply moved you to a 72-month loan instead of a 48-month loan.  In other words he added two years of monthly payments to your overall cost.  By taking the 72-month loan, you’ll end up paying $2,349 in interest instead of the $1,561 you would’ve paid over the course of the four-year loan.  That’s almost $800 more.

Now, you might say getting the new car you otherwise would not have gotten is worth the $800.  Maybe it is.  That’s a value judgment, and we’re not here to judge you, just to advise you.  Because there’s another potential issue here, too.

What are we talking about?  We’re talking about being “under water” or “upside down.”  The longer the loan the more likely this is to happen as you move toward the middle of the loan period.  Being upside-down means you owe more on the car loan than the car is actually worth.  In other words, you can’t pay off the car loan from the proceeds of selling or trading in the car.

That’s just a minor footnote not even worth mentioning if you keep the car through the entire length of the loan and pay it off.  But if circumstances change and you decide you need a different car, you’ll have to pay the difference to retire your car loan and get a new one.  And that difference could be hundreds of dollars.  Many people “solve” that problem by adding that “gap” or dollar difference to their next new-car loan, but you can see the implications of that – you’re borrowing more money and paying a larger monthly payment not just based on the new car you are getting but also on the previous car you are trading in.  Suffice it to say, Warren Buffett wouldn’t do it that way.

So as to the pluses and minuses of long car loans, the obvious and perhaps only plus is that they can result in lower monthly payments.  On the minus side, you will pay longer and you will pay more in interest even if the interest rate for the longer loan is the same as for the shorter one.  Additionally, with a longer loan you run more risk of being “under water,” which means it will be expensive to switch from your current vehicle to another one during the course of the loan. Whatever you decide, we suggest you take a few minutes to think about it.  Why make a split-second decision that could cost you $1,000?