NEW YORK (MainStreet) – Auto leases and smartphone sales help consumers update for a low cost, but not doing your homework can make the former a far more expensive mistake than the latter.
According to auto pricing and analysis site Edmunds, 27% of all new car transactions last year were leases. That's up from a low of 16.6% at the bottom of the recession in 2009 and even well above the pre-recession high of 19.5% in 2007. Phillip Reed, senior consumer advice editor for Edmunds, wrote about leasing in his book Strategies For Smart Car Buyers. He notes that advancing technology and automakers eager to move new car stock and create a supply of new vehicles have made leasing less of a luxury option and more of a mainstream approach.
“One of the attractive things about leasing is that it puts you in a new car about every three years, and technology is evolving rapidly,” he says. “It used to be that cars were cars, but with safety technology, there have been significant changes in recent years.”
He notes, though, that there are a whole lot of moving parts that go into the cost of a vehicle lease. Sean Peoples, vice president of sales for vehicle pricing and review site CarGurus, points out that a lease is actually a loan on the depreciation of a vehicle during a predetermined period. A combination of the vehicle's total purchase price, residual value (what it's worth at the end of the lease), the “money factor” (a lease's version of an annual percentage rate) and “capitalized cost reduction” (basically, the down payment) all go into determining the overall cost of the lease and your monthly payment. While you don't have to focus on all of that to get a good deal, it helps to have a full picture before going into negotiations.