Shopping for Cars Tip #3 – Hot Lease Terms are Your Best Friend!


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Tip #3 for Shopping for Cars

shopping for carsBefore you start going ballistic sending me emails and commenting, please read this entire article on shopping for cars. If you have ever heard me speak, you know that I think that leasing a vehicle is one of the absolute worst financial decisions you can make. It falls right in line with having a car payment in my book. In fact, it’s worse because you aren’t really paying down any debt, you are perpetuating it! However, by and large people will do what society dictates, so leases will not be going away anytime soon. While I think leasing a car is a terrible financial move, I do think that if you are following our tips on shopping for cars, that it can be used to your advantage. If you have convinced yourself to be patient after reading tip #1, and realized that new to you is as good as new after reading tip #2, you are going to love tip #3!

Considering the Lease Option

If you are trying to narrow down the type of car you would like to purchase in the future, you definitely want to take a moment and browse the current lease promotions being offered by the automotive manufacturers. In addition, you may want to see if you can find any of the lease promotions from the prior two years (depending on the time frame of your purchase). It’s no secret that the automotive industry has been hurting in a tough economy. It’s also true that many people would not be able to afford a car payment on a nice new car in an effort to keep up with the Joneses. Lucky for them, the automotive industry has attempted to solve two problems at one time. They have made ridiculously attractive lease terms with little to no money down and a relatively low monthly payment in exchange for a plush new ride. While it may seem like this is harmless at first, it isn’t. Using my new car, a BMW 535i as an example, I will explain why.

If I Went for Leasing when Shopping for Cars

BMW had an incredible lease promotion in 2010. They probably moved a record number of 5 series cars as a result. Because of the lease options, many people who would have purchased a 1 series or 3 series actually upgraded for less money out of pocket because BMW wanted to move the 5 series cars. They threw everything into the leases, but the kitchen sink. Little to no money down, an unusually low monthly payment and quick turnaround on the purchase. You could literally sign and drive in under an hour in your shopping for cars quest.



On the surface, this theory worked. They moved the cars, people got new vehicles and all was well in the world. Fast forward three years. One of the issues with a leased vehicle is that it is cheap to get into on the front end, but expensive to buy out of on the back end. To translate, you can get into a lease really cheap, BUT, you have mileage restraints AND with a cheap front end, the residual value to buy out of the lease at the end is often inflated over the current market value of the car. In that case, most people will simply turn in the vehicle and lease another one, perpetuating their monthly payments for the foreseeable future. Who really gets hurt? The dealerships.

Turning in Leased Vehicles

When there are such attractive lease terms, the number of cars turned in at the end of the terms creates a massive surplus. As a result, lease turn-ins are forced back onto the dealerships as used cars to sell. How easy will it be to sell a used car to Johnny and Suzy Society when they can just get another new lease for a fraction of the cost? Not very simple. This phenomenon creates a classic, textbook example of the supply and demand curve. When there is an influx of turn-ins at the end of a lease period, the supply of cars goes up while the demand either stays constant or drops. When this happens, dealers are stuck with inventory which forces them to drop pricing in order to turn the vehicles over.

If you are patient, do your homework and are amicable to driving a lease turn-in, you will score an incredible deal on a barely used car that has already taken the bulk of it’s depreciation on someone else’s nickel. In other words, you could drive a car for less than 1/2 of it’s original sticker price! That, my friends, is why hot lease terms are your best friend!

Next week, we will publish or fourth and final tip on shopping for cars: The Beauty of Buying Lease Turn-ins!

~David

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Comments

  1. Is there a way to search specifically for a lease turn-in?

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