When Leasing a Car is the Right Option

8/2/2013 2:15 PM ET | By Liz Weston – http://money.msn.com/

Usually, your best option is to “buy and hold,” but not in these three scenarios.

Car leasing is back — big time.

ACB242105455D17DA70F1C2FCE729One in four new vehicles driven off car lots so far this year was leased, according to Edmunds.com, putting the auto industry on track to break last year’s record 22%.

That’s a stunning rebound from five years ago, when the credit crunch led Chrysler to announce it would stop leasing cars, and other manufacturers dramatically cut back.

The trend is being fueled by aggressive deals that have driven down the cost of leasing. The gap between the average monthly lease payment of $418 and the average auto loan payment of $464 is the widest since Edmunds.com started tracking these numbers in 2003.

Manufacturers are targeting younger drivers, who “seem to have a pay-as-you-go philosophy,” said Philip Reed, Edmunds.com senior consumer advice editor. Many young drivers view cars much the same way they do cellphones, Reed said: as pieces of technology to be replaced quickly with more advanced versions.

“If you lease, you get the most recent technology,” Reed noted, citing rapid improvements in safety features, fuel economy and navigation systems.

So has leasing become a smart financial option? Sometimes, the answer is yes.

This was news to me, because when it comes to cars, I long have held that the cheapest option was to pay cash for a slightly used one and drive it for at least 10 years. That’s still true, but there other considerations that sometimes favor leasing. Some examples:

When you want an electric car. Consumer Reports has never been a big fan of leasing, pointing out that “buy and hold” is a better financial proposition for most drivers. But it makes an exception for plug-ins.

“With electric cars, it’s pretty cut and dried,” said Consumer Reports automotive expert Eric Evarts. “Why lock yourself into the first generation of technology?”

Today’s typical electric car has a range of about 75 miles and takes four to five hours to charge fully, Evarts said. But technology is improving constantly, with better batteries that have more range and charge faster.


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