Financial Schools Reviews

It’s an offer some of us won’t be able to refuse: a new car for about half the average monthly payment of a new-car purchase.And that’s not for a junky little penalty box but instead a well-equipped, mainstream midsize sedan such as the Honda Accord, Toyota Camry, Nissan Altima or Chevrolet Malibu. The magic number these days seems to be $199 a month, plus tax and license and whatever money the dealer demands upfront, usually about $2,200 (sometimes less or even much less). The ads are relentless, the cars attractive and the deals subsidized with the automakers’ own dollars, so what’s not to love?

Nothing, assuming you have the sort of incandescent credit rating needed to qualify for any lease at all. And that you have driving habits that make a lease a good deal. And that your $199 a month isn’t better spent on something else. As leases go, these are great deals. With a lease, you’re financing the depreciation of a car rather than the whole vehicle. In these cases, you’re financing that depreciation at a discount.

But that doesn’t mean a lease is a good choice for everyone. A shiny deal is simply a great way to get potential car buyers into showrooms. Here’s how to make sure you emerge with the $199 deal you went in for.

Why leasing died — and why it’s back

Leasing fell off a cliff as automakers and banks found themselves stuck with fleets of 3-year-old full-size SUVs coming off leases just as gas prices were climbing over 4 bucks a gallon in 2008. For example, according to The New York Times, Ford took a $2.1 billion charge against earnings in 2008 to cover the declining value of large SUVs that were coming off leases. It had expected a 3-year-old SUV to retain about half its value; after the collapse, many SUVs were lucky to be worth 30% of their original sale prices.

Then, almost immediately afterward, the housing and stock markets threw conniption fits.

Automakers are now returning to leasing, albeit reluctantly. Banks and automakers’ finance arms are no longer eager to lend to anyone on the basis of a couple of paycheck stubs. Read the fine print on any of these deals and you’ll see that they’re reserved for customers with lofty “Super Preferred” or “Tier One +” credit scores. Forget to pay a monthly Visa bill two years ago? You may already be ineligible.

“The cutback was in some ways an overreaction,” said Joe Spina, an analyst for auto site Edmunds.com. But that doesn’t mean he sees the heady leasing environment of the 1990s returning. “It went on for so long that it didn’t seem like an anomaly. But as time goes on, we’ll see that it was an anomaly. Leasing is getting back to how it began, with (lessors) being more picky.”

That pickiness is what’s making these newest deals possible.

While new-car sales have been in the doldrums, near 30-year lows, the demand for clean, late-model used cars has been strong. With fewer cars coming off leases, the supply of those clean used cars has been restricted, driving up the price of used cars in general. With used-car prices going up, the residual values used to calculate leases have also risen, and that has reduced the cost of leasing. Thus the $199 midsize sedan.

And the $349-a-month luxury car. Though $199 a month seems to have become the sweet spot for mainstream models, aggressive leasing has moved into the luxury ranks as well. Cadillac, for instance, is offering a $499-a-month lease with just $1,000 down on its V6-powered CTS. BMW has special deals available on all its vehicles, including a 328i sedan for $349 a month after $4,924 at signing, and Mercedes-Benz has a lease deal on the C300 Sport Sedan for $349 a month with $4,143 due at signing.

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