New-car leasing, once largely limited to businesses and wealthy luxury-car buyers, has gained wider market acceptance in recent years and is now at record high rates. According to Experian Automotive in Schaumburg, Ill., leasing now accounts for 27.5 percent of all new-vehicle transactions, which represents a substantial 12.5 percent increase over 2012 levels.
Fueled largely by high resale values, rock-bottom interest rates, and loosening credit, automakers in all market segments are able to offer favorable lease deals on a wide range of models to attract bargain hunters – including those on some of the smallest and least expensive cars on the lot.
"Consumers tend to shop for vehicles based within the limits of their budget, and leasing is often seen as a viable path to a lower monthly payment," says Melinda Zabritski, Experian’s senior director of automotive credit. "Lenders have seen overall stability come back to the market since the recession, and leasing has gradually returned as a larger part of many lender strategies."
How good are the deals these days? We recently found a BMW 320i – arguably the best compact sport sedan in the industry – that otherwise sells for $36,675 being offered for $299 a month on a 36 month lease with a $3,457 down payment. A midsize Nissan Altima sedan was advertised at $199 a month for 36 months with $2,200 down, while we found a Chevrolet Cruze compact sedan going for $149 a month for 36 months with $2,329 down. We even came across one model, the diminutive Smart ForTwo, leasing for as little as $99 a month, which is less than the cost of a daily latte at Starbucks.
Think you can’t afford to drive an electric vehicle? We found the Nissan Leaf EV – rated at the electric equivalent of 129/102-mpg city/highway – being offered for $199 a month for 36 months with an $1,800 down payment.
The basic allure of leasing is that you don’t have to pay for the entire cost of a vehicle, just that part of it you actually “use” for a specific period. Lease payments are generally based on the difference between the vehicle’s transaction price and what it’s estimated to be worth at the end of the lease term, financed at a particular rate of interest. Generally, the lowest advertised lease rates are typically limited to those with top credit scores who represent the lowest risk. Those with less than stellar credit will typically pay a higher financing charge that will, in turn, result in costlier monthly payments.
Otherwise, automakers and leasing companies can also manipulate certain provisions of the agreement to help sweeten the deal on a given model. Called “subventing” a lease, this often involves subsidizing a below-market interest rate, artificially inflating a vehicle’s residual value or offering bonus cash to lower a car’s transaction price.
Another way automakers can lower a lease payment is to limit the number of annual miles allowed. This is typically 12,000 miles per year, though some contracts might cut corners with as few as 7,500 annual miles. Be sure not to enter a lease that unduly limits your mileage, as you could be assessed as much as an extra 15 to 30 cents a mile for exceeding the limit. This means you’d have to come up with $150 to $300 per 1,000 extra miles at the end of the lease.
And be aware that if you tend to be hard on your car or truck, think twice before leasing one. Leased vehicles must be returned in excellent condition, without dents, deep scratches, window cracks or torn upholstery and with all accessories in good working order; otherwise you’ll be assessed costly “excessive wear and tear” fees.