Posted on: Saturday, May 28, 2005

Benefits vary for leasing or buying

By Brian Monroe and Dave Burge
Gannett News Service

When deciding on a car, consumers who can't pay cash have three choices:

• Traditional financing.

• Leasing.

• Or a hybrid of the two called a balloon purchase.

Lease payments typically are smaller than monthly car payments, but a slew of other costs could inflate the bill at lease's end, making it more expensive in the long term.

"Before deciding to lease, consumers should make sure they understand the total cost of a lease, its obligations and restrictions, and how that compares with using a loan to buy the same vehicle," says William Anthes, president and chief executive of the National Endowment for Financial Education in Englewood, Colo.

When a lease expires, usually within three to four years, consumers could be responsible for end-of-lease charges, such as excess mileage, wear and tear, and charges to prepare a vehicle for resale, Anthes says. So get all beginning and ending charges in writing and understand the meaning of phrases such as "normal wear and tear."

Think of a lease as a long-term rental. You have to turn the car in when it's over.

Most leases cap mileage at 12,000 miles a year, Anthes says. Going over that could mean 10 to 25 cents for each mile beyond the limit.

Leases constitute about a quarter of all car and light truck sales, excluding fleet purchases, according to CNW Market Research in Bandon, Ore., which tracks the phenomenon. That's down from more than 37 percent in 1999.

Still, car dealers say leasing is a viable option for many in the market for a new car — especially a luxury model.

Leasing allows people to "get a more expensive vehicle, with more options, for lower payments and less money out of pocket," says Alan Brodsky, general sales manager at Toyota and Scion of Melbourne, Fla.

A customer is responsible for tires, gas, insurance and the monthly payment, but little else, making it easier to budget.

In contrast, when buying a car, the final cost is tougher to determine and depends on interest, the time needed to pay off a loan, repairs and depreciation of the car, Clark says.

The biggest benefit from a lease is what is called the car's guaranteed future value. The car dealer determines in the lease what the car will be worth at the end of the contract.

Consumers who plan to drive a car for more than three years probably should buy it. Those who like to trade in a car every three years should consider a lease agreement or balloon plan.