Leasing is the easiest way to get a new car every few years while letting the dealer or leasing company worry about disposing of the old one. Leases have some major disadvantages.
One of the biggest drawbacks -- especially if you are not accustomed to leasing -- is that you are forced to make a major financial decision when your lease expires. You must either return the car and buy or lease a new one, or buy the vehicle at the lease-end price. (Typically, the value of your car or truck at the end of the lease is set in advance.)
Leasing a car rather than buying it will generally cost you much more than simply financing a purchase from the start. If you think you might want to buy the car, do that from the outset. Lease only if you're sure you don't want to keep the car long term.
If you buy a car or truck, you can postpone any decision about replacing it at least until mechanical trouble forces your hand. If you don't mind driving an older car, the best decision on purely economic grounds usually is to buy a new car and keep on driving it long after your loan payments have stopped.
If you typically trade for a new car every four years or less, you'll want to avoid the loan down payment of 10% to 20%, drive close to but not more than the 15,000 miles a year allowed in most leases and typically keep your vehicle in good condition to avoid end-of-lease penalties, you might well be happy leasing.
Keep in mind that there is a reason why those low lease payments look so attractive: Instead of paying for the entire car, you're only paying the estimated depreciation over the time you are leasing it. So to get a really good lease deal, you need to look further than just the payments. You need to understand how leasing works, do your homework, and negotiate as hard as if you were buying the car.
Here is a step-by-step guide:
Master the jargon. You can't successfully negotiate a lease without becoming fluent in the industry's terms. What you need to know before you start to bargain: The capitalized cost is the equivalent of the selling price, which you want to get down as low as possible. The residual value is the estimated worth of the car at the end of your lease. Your monthly payments are determined by the difference between these two figures, plus an interest charge known as the money factor. Thus, raising the residual value or lowering either the capitalized cost or the money factor will lower your payments.
Look for a manufacturer-subsidized lease. These deals, often promoted in splashy ads in newspaper auto sections, are likely to be the cheapest available.
Set a target and negotiate hard. You can find out the so-called dealer's invoice cost for any car or truck by checking sites like Edmunds.com or Kelley Blue Book. Set a target price about 2% above the dealer's cost. Start bidding below your actual target and plan to wind up near that figure.
Be aware, though, that manufacturer-to-dealer incentives may lower the dealer's costs to far less than the invoice price, which means you may have a lot more room for negotiating. Consult Edmunds.com, which provides some information about manufacturer-to-dealer incentives. Or go to Kelley Blue Book's site, KBB.com, where you can access the actual prices people are paying for cars, as well as whether manufacturer-to-dealer incentives are being applied to a particular vehicle.