What earthling would qualify for a $69 a month lease on a new Honda?
Last night, watching the Mets game on a NYC station, there were two or three new car ads in every between-innings commercial break, for the Memorial Day sales. Honda $69, Hyundai Elantra and Nissan Sentra $109. One of them had no payments for five months. That’s cheaper than the average middle-schooler’s cellphone. Car dealers as far away as Pennsylvania were advertising their car deals in the Mets game. I must have seen at least 50 car ads in one game. The car sellers must have known months n advance about this sale, in order to book all that ad time.
So, what’s the fine print on these lease offers. What do I need to do in order to drive away in a new Honda for $69 a month. If you or I walked in off the street, what’s the best deal we could actually get, in the real world?
I once called a dealer and asked about a similar deal they were running.
Their requirements were that you : A. Put down a down payment of ~$3,000
B. Carry full collision and comprehensive insurance on the car, which is not included in the lease payment
C. Have a credit score above 700
The entire point of a car lease (to consumers, not businesses or fleets) is to sell the “new” at a premium price. You typically pay a high down ($2-5,000) and then pay the difference between new cost and lightly-used cost in 24 to 36 installments. If the car sells for $15,000 new and they expect to get $10,000 for it in two years, you’ll pay about $5,000 / 24 or $210 a month. Sometimes part of the down is factored into that to lower the payments. You then have to treat the car like a rental, with maximum insurance coverage, strict mileage limits and often a requirement to have dealer-equivalent service performed on schedule.
You get to drive the new off of it, someone in 2-3 years gets a very gently used car and the dealer/leaser gets to skim the cream off the deal at several points.
So leasing an inexpensive car whose value will hold up well IF it’s maintained in perfect condition is a deal and a way to get new, if only slightly profitable business in the door. Go over miles, or otherwise reduce the value? You’ll pay through the nose for the lost value.
Leases are NOT for the benefit of the consumer. Never have been. Probably fewer than 10% of those who lease are getting an even deal.
A. The up-front money is a big key to advertised low lease payments. When I see lease offers, I always look at how much they require at signing. Obviously, the more they require up-front, the lower the monthly payments can be.
B. Why would you not carry full collision and comprehensive coverage on a new car? And why would that ever be considered part of the lease payment? I look at my insurance as separate from my vehicle financing or leasing.
C. Makes sense to me. People with the best credit scores get the lowest interest rates (or money factors in leasing terminology).
I couldn’t find a $69 Honda lease online, but I did find a $79 one. It is a 27-month lease and allows only 10k miles per year, and requires a $2,995 downpayment. So, it seems like they are limiting the miles (isn’t 12k per year standard?) and also requiring a pretty large up-front payment (effectively $111 per month on top of the $79 payments).
Which is one reason leases tend to be a bit predatory. You walk in with $3k in hand, looking for a car in that range, or as a 50% down, and get talked into a Brand! New! Car! for your cash and three years of payments that get you nowhere financially and not very far on wheels.
And I’d guess that most lessees end up with a bigger down and larger payments because they don’t have a 700+ FICO score. But by then they’re high on new car smell and not thinking clearly any more.
I don’t know. I had a three-year lease on a new Mitsubishi and it cost me a total of $13,000 for three years (down payment and monthly payments). I had to maintain collision insurance, but I would have had to do that anyway for a car that is financed.
At the end of three years, the Blue Book value was about $15,000 below the purchase price. If I had purchased the car outright, I would have been in pretty much the exact same position. The key part was that I couldn’t put excessive mileage on the car. Driving less than 10K per year, I basically broke even. I just had to drive the car back to the dealer and turn it in.
The specific models they advertise can be fictional.
I once walked into a dealer saying I wanted to see the Chevy Tracker that they were advertising for a very low price (ad by this dealer, in the local paper). They said that particular model was not in stock, very difficult to get and very spartan (no vinyl on the inside of the doors, etc.). In practice, the most basic model they really had in stock cost several thousand more. I ended up buying elsewhere.
Last year, my hubby’s company wanted to get two units of the cheapest possible Grand Caravan, as advertised. Again, the dealer said it would take months to get that model. “Fine”, they said, “we can wait”. They did get them after about two months; I guess they were made to order.
Sinking money into buying versus leasing is a good deal if you plan on keeping the car past the time it’s paid off. If you’re just going to get another car once the current one is paid off, you’re losing money on the deal - you’ll pay more interest on more principal. Cars are not investments, like houses and the like - they’re depreciating assets. Buying has no intrinsic financial benefit.
Most leases nowadays have a buyout option - when the lease is up, the leasee has the option to buy the car for the remaining value, locked in at the start of the lease, which is generally less than the price of a 3 year old vehicle. If the car has depreciated less than the dealer expected, the customer can come out ahead. Having that option evens out the balance on the lease.
As for the insurance, everywhere I’ve lived, it’s required by state law to carry full coverage on any vehicle that is financed, whether to lease or own. Most leases have a requirement for “gap insurance”, which covers the difference between the value of the vehicle determined by your insurance adjuster and the value left on the lease, in case of a complete write-off of the vehicle. When I was looking at leasing, I was quoted an extra $7 per 6-month term for gap insurance.
If you’re fine with always having a car payment (driving a car 5 years old or newer) forever, leasing is perfectly viable. A lease payment is often half to two-thirds of a payment to own, with the caveat that you lose the car in three years. Extra mileage and service can be negotiated with the dealership. Many dealers offer discounts and cash back for leasing a new vehicle when returning a previous lease.
Leases have a history of being very predatory, but consumer knowledge and transparency (the internet) has largely made the worst abominations all but impossible. If you are willing to do the math, they can be viable and even beneficial.
Still, the best ability when shopping for new cars is the ability to walk away. Some dealers are gonna be shady as hell, no matter what.
the way to view leasing is that- assuming you don’t accrue additional charges- you’re basically just paying for the depreciation of the car. After you turn it in the dealer gets a nice-condition used car they can “CPO” and mark up for resale.
at least, that’s the plan. the market’s going a little bit weird again right now.
Very true. Buy a $35K car and pay cash, keep it for three years, sell it for $20K…your cost for three years was $15K. You’d be in an identical condition if you had leased it for the three years for $15K. (Assuming that you had comprehensive insurance in both cases, which you probably would.)
Buy the same car and keep it for ten years…a different story. But a lot of people DO trade up or get new cars every 3-4 years. I have lots of friends who ALWAYS have a car payment.
700-740 is “good” credit (technically 670-740 but they said 700 min). Creditworthy but not exceptional. 800+ is considered the “best” range of credit scores.
