Just because you can no longer charge jeroboams of Williams Selyem Pinot on your tired old Visa card doesn't mean that free and easy credit isn't returning to the Land of the Free. At least one type of credit has been clawing its way back—secured debt. That's the kind of debt you incur when you buy or lease something major like a car, the key point being that your friendly bankers can come and repo it if you fail to mail them the green on time each and every month.
With U.S. car sales in 2009 off more than 40 percent from their all-time high of 17.4 million in 2000, carmakers have been working extra hard lately to get people back into the new-car habit, with extra-low (read: subsidized) interest rates and irresistibly cheap leases.
While buying is often the better option for those unable to legally deduct lease payments from their income every April 15th, a lot of people still like leases because they offer lower monthly payments and you avoid the hassle of getting rid of it—the company just takes it back at the end of a lease. In fact, since automakers and banks began playing ball again last summer, the percentage of new cars being leased has doubled. Carmakers aren't stupid—they understand the magnetic pull of fixed numbers like "$199 a month!!" for a car that might cost $386 a month to buy—so when they want to move more cars in a hurry, they know to sweeten the deals.
Here's how it works: In theory, a lease price is based not on the full retail price of the car but on an amount that equals the difference between the retail sale price of the car and what it will be worth two or three or four years later, the latter a number known as the residual value. So if you wanna buy a $25,000 car that has a predicted residual value of $20,000 in two years? You're financing $5,000, divided by twenty-four months, plus interest. Wanna buy a $25,000 car that's going to have a residual value of $15,000 in two years? Ordinarily, it ought to have a higher lease payment, but more and more you may find yourself the beneficiary of a manufacturer desperate to overstate what its car will be worth in the future—say, bumping that $15,000 up to $20,000 to make a better deal just to stay in the game. Yes, even after you've been driving it through slush and potholes for thirty-nine months while your kids are busy barfing and spilling juice boxes in the backseat. Who knows? Maybe they've been tainted by scandal and need to move some metal again.
Just remember that when you lease. you'll be limited to 10,000 or 12,000 miles per year (paying extra for any overage), and let the manufacturers' sales agony play to your benefit. Actual numbers may vary according to region and individual dealer, and there are always some surprise fees and taxes. But before we unveil our favorite lease deals of the moment, let's take a moment to review the worst. After all, you're your own man. No one is going to stop you snagging the car of your dreams, even if it's one of the worst lease deals in America. What's the point of arriving if you can't plunk down $72,000 for a one-year lease of a car incapable of carrying your laundry to the cleaners?
Thursday, March 31, 2011
The Best and Worst Car Lease Deals: Cars: GQ