Enticing Lease and Financing Deals Return to Car Market


A sense of normalcy seems to be returning to automotive financing, a good thing for the nearly 90% of car shoppers who finance or lease their vehicles, according to CNW Marketing Research.

With short-term interest rates near 0%, banks now can offer 3% to 4% financing, according to Bankrate.com. That’s the lowest rates have been since the downturn, according to The Detroit News.

Besides the money saved on financing, lenders are more willing to lend money to car shoppers with subprime credit (typically a FICO score below 680) than they were during the past few years. Subprime lending increased about 18% in the last three months of 2010 compared with the same months in 2009, according to Experian Automotive. The average credit score also dropped in the same period, from 775 to 767 by the end of 2010. That means lenders are more willing to take risk on people with less-than-stellar credit. Lenders also are more likely to lend more money; the average loan amount increased by $209, to an average of $25,789 over the same study period.

Lending firms and credit unions are issuing new auto loans partly because of ferocious competition by the banks.

On top of the better financing atmosphere, the leasing market is starting to grow again. Leasing typically makes up about 20% of the new-car market, and it’s currently up from its 16% share (a low) in 2009. Leasing has improved as residual values on used cars have increased. Used-car prices have steadily increased as demand for such vehicles increased during the recession, reducing supply.

Better leasing also improves access to luxury vehicles. BMW, Lexus and Audi are heavily leased, with Mercedes-Benz seeing nearly 60% to 65% lease rates for its vehicles, according to Automotive News.

Rising fuel prices could affect residual prices on some leased vehicles — like in 2007 and 2008 — limiting the popularity of leasing in the future for SUVs and high-performance cars.

Lenders Making the Road to Auto Financing Easier to Travel (The Detroit News)

By Colin Bird | March 29, 2011 | Comments (16)

Comments 

Anonymous Coward

I'm still not seeing the heavily-subsidized leases like I saw in late 2006-early 2007. There are a few decent lease deals right now. And the market is no longer dried up like it was in late 2008.

DC AutoGeek

I remember back in 2007 I was offered $7,500 off invoice on a lease of a BMW Z4 M. I think it came out to around $490 a month - which, if you don't know, is very cheap.

Question though - Why aren't MF and residuals offered up as public info?


DeBinder Dundett

Leases are ideal for some people and any form of leasing is better than none at all. One of my friends who currently owns an old truck and an old sedan,he is keeping both, took out a lease on a 2011 Lincoln for $359 a month for 36 months with 0 down and 0 at the end of the lease. You just can't beat that if you drive less than 36K miles in those three years. And if he dies during the term of the lease his kids won't be fighting over who gets the new car, unless they want to make the lease payments.

MX

"...took out a lease on a 2011 Lincoln for $359 a month for 36 months with 0 down and 0 at the end of the lease. You just can't beat that..."

$12,924 later and no equity in the vehicle. Stupid is as stupid does.

Cory

MX - Seems to me you just proved your point of being stupid yourself for posted your thoughts. Howelse does someone Drive a $40,000.00 car for $12,924.00.

Amuro Ray

MX,

"$12,924 later and no equity in the vehicle. Stupid is as stupid does."

I don't know who is more stupid here.

Spend over $40K so that you have sthg that worth $18K in 3 years? Smart...

Back when I was semi-associated with the industry, there was an unspoken rule for those budget conscious consumers - lease the expensive, buy the cheap. It makes sense once you look the the depreciation % and translate it into actual $ loss (plus factor in maintenance, insurance, etc.). 1 exception is if you have to drive a lot...

MX

You have every right to be mad as it must really suck knowing you can't afford a down payment so you have no other choice but to lease.
If you had any semblance of an education you'd be able to figure out that a $0 down, $359 mo for 36 mo is not possible on a $40,000 car unless the depreciation rate is >72%. Enjoy the dope slap, now run along junior.

Wingrider69

MX - Just because you lease doesn't mean you don't have money! Smart financial decisions are the difference between having money & not having it. Obviously, on the Lincoln there is a substantial amount of Cap Cost Reduction, along with a low lease % rate. The only way to compare whether a lease is good or bad is to compare it to a conventional purchase. You complain about paying $375/month to have no equity in 3 years. What if you put 20% down, paid $450/month & still had no equity in the vehicle? Very possible in the marketplace, if the vehicle suffers above average depreciation. The customer has no resale risk in the lease, at all. It all lands at the feet of the leasing company.

MX

"What if you put 20% down, paid $450/month & still had no equity in the vehicle?" That's impossible except in your fantasy world.

"The customer has no resale risk in the lease, at all. It all lands at the feet of the leasing company."
The condition you turn the vehicle in can directly effect the resale value.


Congratulations for proving how ignorant you are.

Anonymous Coward

Not to feed the flames, but there are such things as manufacturer-subsidized leases. Yes, if you buy a new or gently used car and drive it 10 years or more, you will come out ahead in the long run, but this is not what the majority of buyers do.

You can get a basic Accord for $250-260 per month for 36 months with zero out of pocket. You'll pay a total of $9,000, you get the car for the best 36 months of its life, and you'll pay little in maintenance and nothing for repairs, tires, or brakes. It's an ideal solution for someone who drives a consistent number of miles and always wants to have a newish vehicle. You would pay far more out of pocket if you bought the same Accord and traded it in after 36 months.

Amuro Ray

Not only that, AC, a lot of people lease for their businesses. They can claim the leases as part of the corp tax.

DeBinder Dundett

A lot of people lease because it works for them. It's like getting a new car every three years or so. The lease company makes out pretty good too, when at the end of the lease, they sell the vehicle for residuals. In the case of the Lincoln leases, Ford is heavily subsidizing those for the time being. Those who lease for business really do get a great deal because they get to write off their lease expenses and get their ride for free. When I was self-employed I leased a GMC Suburban for my business and wrote all of it off against the business, which also saved me tons of money I did not have to pay income tax on. It really works! As to my friend who leased the Lincoln, his social security check is making the payments and he would much rather keep his money in the bank without having to eat the depreciation of buying a new car. That's why he keeps his old wrecks around as well.

DC AutoGeek

Example A: Buy Car X finance for 4% total cost.

Example B: Lease Car for 3 years. Finance depreciation at 1% MF via lease. Finance buyout at end for 3 percent.

Who is ahead?

Amuro Ray

"Finance buyout at end for 3 percent."

Who said that you must finance buyout at end?

Just go lease another new car after the initial lease is over. A lot of people have done that. No warranty and maintenance issue to worry about - not even tune-up!

Wingrider69

MX - You must be having a bad day, or life, even. I feel badly for you that you must make personal attacks towards anybody that doesn't fall into lockstep with your thinking. I may be many things, but ignorant is not one of them. The 20% down $450/month example is not fantasy. I have witnessed it enough times to know that it isn't fantasy. I've seen leases compared to 60 month notes @ 0%, with sales tax down that have a customer in a worse position 3 years in the future than the lease would have had them. Additionally, regarding the vehicle's condition. Wouldn't you agree that if the vehicle had condition issues, they would be the same regardless if the vehicle was paid for outright, financed or leased? Bald tires need to be replaced. Cracked windshields need to be replaced. Sooner or later, those items are paid for. It may be at resale time, lease termination, or when the customer pays for them during the normal course of vehicle ownership. The mind is like a parachute. It works best when it's open!

If you’re sitting on the fence when it comes to buying a home right now, you may want to jump off and take advantage of the current FHA home loan guidelines (and federal tax credit) before they change.

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