Once used mostly to move luxury cars, leasing has reached record levels, helped by easing credit restrictions and a move downmarket.
Leases on Jaguars and BMWs remain plentiful, but the most-leased cars in America are the Honda Civic, Toyota Camry, Honda Accord and Hyundai Sonata, according to Experian Automotive, an arm of the consumer credit-rating company.
Consumers gravitate to leases – essentially long-term car rentals – mostly because they offer lower payments. Last year, the median lease payment was $361, about 20 percent lower than the median $434 loan payment on a purchase, according to auto information company Edmunds.com.
Shoppers have pushed leasing to a record 25.7 percent share of new-vehicle sales in the first quarter of this year, up from just 16.3 percent in 2004, according to Edmunds.
Leasing attracts buyers such as Jerry Festa, a Los Angeles insurance agent who likes the “simplicity and convenience.”
“I go down, pick out the car that I want. I drive it for a few years and give it back,” said Festa, who leased two hybrids from Santa Monica Ford in the past month. “I don’t have to worry about selling the car. I don’t ever put a brake pad on a car; I don’t ever put a tire on a car.”
The drawback? Never getting rid of the car payment. But Festa figures that’s a fair price for always having a new car under warranty.
Automakers are doing their best to coax customers into leasing. Honda has pushed especially hard, even with budget cars.
“I can’t believe some of the lease deals that I see,” said Philip Reed, consumer advice editor at Edmunds. “They are really good.”
Leasing of such practical stalwarts as the Civic sedan has taken off with attractive offers, said Brad Mugg, general manager of Norm Reeves Honda in Cerritos, Calif., the nation’s highest-volume Honda dealership. The dealer now leases 32 percent of all its cars.
The Civic leases for $169 a month, with no down payment. But a deal such as this is only a cheaper option in the short term, Reed cautioned.
At the end of the contract, usually 36 months, most consumers return the car and pay for a new lease or purchase. You walk away, regardless of how much money you put into monthly payments and any upkeep.
Leases also offer the option to buy the car at the end of the contract, but at a value determined when the lease starts – which may be higher than market value when it ends.
“If you look strictly at economics, you don’t want to become a serial leasee because you will always have a car payment,” Reed said.
Consumers also need to be circumspect, even when the lease deal appears especially attractive.
An advertised $249 monthly payment, for example, doesn’t include tax and registration fees, which immediately raise it to about $275. Higher lease rates will apply to people with lower credit ratings. And many leases carry substantial down payments or other upfront charges, Reed said.
It always pays to get bids from several dealers and to pay attention to the details – length of lease, upfront costs, mileage limits – to make sure the deals are comparable.