Buying a vehicle is a commitment even in the best of times. A down payment ties up a lot of ready cash. You make payments for 48, 60 or even 84 months. And worse, the car loses value as soon as you drive it off the lot, which means you may owe more than it’s worth for years.
That’s not a great fit in this pandemic-driven recession, where flexibility and adequate emergency savings are keys to financial survival.
Right now the answer to the car leasing question "is a very big 'yes,' for leasing," says Oren Weintraub, president of Authority Auto. He's advising clients of his car-buying concierge service to at least consider car leasing because of the current economic conditions.
You can put little or no money down. You can select a shorter term than a car loan. And the risk of massive depreciation down the road is borne by the bank, not you.
A lot of buyers are coming to the same conclusion: The percentage of buyers who use automakers' finance arm and choose to lease has risen from 31% to 52% year over year, according to industry analyst J.D. Power.
“No one knows what will happen over the next few years,” Weintraub says. “People are worried about job security and their finances so the commitment of a car purchase isn’t as appealing.” Instead, consumers are leaning toward car leasing because there are affordable two- and three-year leasing agreements available. Also, points out Scot Hall of the lease-trading site Swapalease, leases are more flexible since the contract can easily be transferred to another person without a severe financial penalty.
During the recent lockdowns, many people burned through their savings and had little cash left for a down payment for buying a car. But lease contracts can be initiated with little or no money down. Of course, a no-money-down monthly lease payment is higher, but some people still prefer it, Weintraub says. If monthly payments are still too high, it’s best to consider leasing a lower-priced car to stay in your budget.
Current lending rates are at a nearly seven-year low, according to auto site Edmunds, with many no-interest loans available. Weintraub says this substantially reduces the cost of monthly payments.
Each month, carmakers offer incentives to make car purchases and leases more affordable. Weintraub says there are currently many of these low-cost car leasing incentives available. That could change as sales rebound, though. To find deals, Hall recommends going to the manufacturer’s website and searching for special offers. The terms of the lease are spelled out by listing the three major elements of the contract.
Car leasing is based, in part, on the predicted value of the car at the end of the contract. But in today’s world, Weintraub says that no one truly knows what the car will be worth in three years. So if the value of the car unexpectedly drops, it’s the lender’s problem, not yours. If, however, the car’s value is unexpectedly high at the end of the lease, you have the option to buy the car yourself and can possibly make money by selling it.
