If you’re considering leasing a car, keep in mind that you might not end up saving as much money as you thought.
Discounts on new cars are scarce whether you buy or lease because of limited inventory and continuous supply-chain issues, which results in fewer options and higher pricing because demand is greater than supply. According to a joint prediction from J.D. Power and LMC Automotive, the average purchase incentive among the incentives given is anticipated to be $894, down from more than $2,000 a year ago.
“One of the factors contributing to the reduction in incentive spending is the absence of discounts on vehicles that are leased,” stated Thomas King, head of J.D. Power’s data and analytics branch, in the study.
According to the analysis, July marked the first month in which the average discount fell below $900 and the third consecutive month in which it trended below $1,000. Separately, data from automobile comparison website Edmunds.com shows that the typical monthly payment for new leases increased in July to $594 from $575 in June.
“Dealers aren’t getting the incentive programs from automakers that they used to … or even if there are programs, the dealerships aren’t participating,” Ivan Drury, senior manager of insights at Edmunds, made the statement.
“In years past, they did this left and right,” he said.
The inventory might not include discounted cars
Drury said that the few manufacturer discounts being provided only apply to very particular trim levels of some vehicles. Even so, it doesn’t guarantee that you’ll have no trouble locating the precise vehicle that qualifies for the bonus.
“If the dealership isn’t ordering those vehicles, how are you going to get that special?” Drury said.
According to Edmunds, the percentage of new-car transactions including leases dropped to 18% in July, the lowest level since February 2009. It was 27.2 percent a year ago.
‘You’ll just be paying more to lease right now’
Ivan Drury, senior manager of insights at Edmunds
Despite the lack of incentives, Drury said it can still make sense for you if you are a serial lessee for whatever reason. Just be ready to see fewer options and possibly considerably higher monthly payments than they were three years ago. Depending on the car, the savings from those instalments over standard financing can be less.
“Some people don’t like having a car that’s 4 or 5 years old,” he said. “You’ll just be paying more to lease right now.”
In the meanwhile, if you’re thinking about leasing for the first time, you should know that the cost of financing is expressed differently than it is with loans.
The “money factor” is a figure used by leasing firms. In order for you to know how much you’re spending, the dealership should be able to translate that sum into an interest rate.
By way of reference, the average interest rate for new cars that are financed using a five-year auto loan is around 4.84 percent, as per Bankrate. As the Federal Reserve keeps raising rates in an effort to combat inflation, that number might increase.
Find out what your lease-end options are
Be aware, however, that if you currently have a lease that expires this year, experts advise looking into your choices because you might be able to profit from the fact that your car’s current worth may be more than its predetermined residual value.
This is why: Due to a lack of new automobile inventory, demand has continued to migrate to the used car market. According to CoPilot, a car shopping tool, prices for 1- to 3-year-old vehicles are on average $13,145 higher than they would be if usual depreciation estimates were in effect. Most leases have a three-year term and have mileage limitations.
This means that rather than returning the vehicle, it could be worthwhile to consider buying out the lease. You would pay less for the vehicle than you would if you were to buy it off a dealership’s lot if the buyout price (which is typically the residual value) in your agreement is lower than the current worth of the car.
