Your next new car: Leasing or buying?
Forget what you thought you knew- technology is changing the game
At the end of October, News 6 did a story titled “Lifehack: Holiday Money Edition” in which we focused on three different areas for spending your hard-earned holiday money: best circumstances for using a debit card versus a credit card, online shopping versus brick and mortar, and car purchasing: leasing versus buying.
For our new car advice, we turned to Cars.com Executive Editor Joe Wiesenfelder, who spoke to us by satellite from Chicago. Joe gave us some very insightful points (and a great interview); we thought we’d share more of his advice in our ongoing Q&A series.
News 6: Lately, there seems to be a lot more interest about leasing a car instead of buying. Do you think leasing is a good idea?
Wiesenfelder: Leasing is definitely great for people who always want to be in a new car, every couple of years and typically lease terms are every two to four years. The difference between leasing and buying is that at the end of the lease, you have the option of buying it, but then you’re throwing more money into it. Whereas if you finance a car, typically for a longer term, ultimately you own that car.
News 6: Is there a specific advantage to leasing?
Wiesenfelder: So the advantage to leasing is lower monthly payments, because you’re never actually buying into it, you’re just buying for the depreciation. It starts out newer then it ends up at the end of that lease so the amount of time you’re owning it is what you’re paying for. But it comes with restrictions and I think that's one of the things that turns some people off to leasing.
News 6: Such as?
Wiesenfelder: There are limits on mileage, typically 10,000 to 15,000 miles per year. The car also has to be in great shape at the end of the lease. It can have no more than ordinary wear and tear, and if it does, you’re on the hook for that. You have to have it in good enough condition at the end of the lease and you can’t break the lease early or you pay big termination fees. If you go over your mileage it can cost you 25-cents per mile over - we’re talking about really steep fines. So it’s not for everybody.
News 6: So why lease?
Wiesenfelder: I do think leasing is probably wiser now than it’s been in a long time and that’s because of the nature of the vehicles themselves. They change so quickly now. We at Cars.com – we review new cars and it’s amazing how much the technology changes from year-to-year. And unlike many products, like your cellular phone which updates over time, today, the overwhelming majority of cars, when you buy them, that’s how they’re going to stay. So if a feature isn’t there, like adaptive cruise control or some other safety feature or the ability to work with Apple CarPlay or Android Auto, that interfaces with your smartphone, then you’re not going to be able to add it later. So people, especially young people, are considering leasing because it’s a lot more about getting the latest and the greatest knowing that the only way to get that is to trade in and start over after a couple of years.
News 6: Are you seeing a trend with younger people going more on the leasing side, say millennials? Are they leasing more these days? Is that how this is going?
Wiesenfelder: I have seen reports that millennials are leasing at a higher than average rate. And leasing is now accounting for about a third of new vehicles sold – we’ll say sold as of about 2016. It’s clearly catching on again. It definitely saw a hit back in 2009 when the credit crisis came along. But it’s back stronger than ever. I think one of the main reasons is the interest in being in the latest and greatest vehicle and maybe a mindset that’s kind of shaped a little bit more by consumer electronics products things. You always upgrade your phone after a year or two when it becomes obsolete. I think that thinking is a little more prevalent in younger buyers or leasers.
News 6: Is there a particular time of year if we’re interested in leasing or is it just whenever?
Wiesenfelder: Leasing follows all of the same guidelines as financing or buying outright. Because you do have the opportunity to negotiate the initial price – the capitalized cost is what it’s called in lease terms. So if you go in and look at the paper and it says this is what the car costs and you pay this much per month and the lease lasts this long, understand that you can still negotiate the initial price on which all those calculations are made. So people should still think in terms of, if they don’t care that the 2018s are coming, then maybe they want to lease a 2017. It’s not really going to matter much to them, it’s how much the car is going to depreciate over time. And there can actually be some advantages in that regard because if you lease a 2017 knowing that 2018 is going to be a new generation, say a redesign, then they’re going to have to calculate that in. The car that you are leasing now may be worth considerably less in the future, so you’re relying to an extent on that projected residual value for the car.
News 6: So if you were talking to someone right now. They just could not make the decision. They have the money, they have the wherewithal to own a car and they’re trying to figure out, do I want to lease, do I want to buy, what would you recommend, leasing or buying?
Wiesenfelder: I think the educated consumer is always the best consumer – the one in the best position to get a good deal. It’s just a matter of doing a little research and finding out what’s coming out, what’s available, do some comparison shopping. There are not that many surprises out there in regards to the change in model year which has already started, depending on the brand and the model. Just look at what’s available and compare prices and if you live in a metropolitan area, especially that has more than one dealer for the same brand, then you can comparison shop just like you would for anything else. That can end up being your strongest tool.
News 6: Anything to add?
Wiesenfelder: So often, I’m asked by people who finance their vehicles, 'When should I sell it while it still has value?' And a car that’s financed is never worth more to you than when it’s paid off. If you’re someone who always sells or trades in a car that you’re financing before you’ve paid it off fully, then you’re probably doing it wrong. You probably should be considering leasing.
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