Lease a car or buy a car? Tips on which is better

by : Ralph M

Car makers are offering car lease payment deals that can't be beaten. So if you are stuck on making lease verses the decision to buy a new car , then here are the tips for buying a new car by leasing is first and buying it at a discount at the end of the lease . This is an once-in-a-lifetime opportunity.

At the end of a lease the company financially backing the lease most likely will sell the car on the open market at a loss because it initially inflated the residual value unrealistically. Why not intervene at that point and buy the car for less than the residual value and put that “loss" into your pocket as money saved?

Because of the oversupply of cars of all kinds, from all manufacturers, it's likely that rebates and discounts will be offered for several years to come.

  • Leases are attractive during over production
    To overcome this, leases will also reflect these discounts and end up being “subsidized" for a similar period by increasing the residual value of a car, Calculating lease payments using the higher residual value makes the lease price more attractive than a competitor's offer. This lowers the monthly lease price.

    Until labor contracts for the Big Three: GM, Ford, and Chrysler, can be significantly reduced, they have no choice but to continue subsidizing leases in order to spur sales. This is once-in-a-lifetime opportunity to minimize the cost of a new car by leasing it first, and then buying it at the end of the lease .

  • New cars will continue being a bargain
    In the past, the auto manufacturers moved cars by subsidizing leases . The monthly lease cost was lowered by increasing the residual value, thereby selling (leasing) more cars . But the value of the vehicle at the end of the lease was almost always less than the contracted residual and each of the off- lease cars then had to be sold in the wholesale market at a loss of several thousand dollars.

    This means that at the end of the lease its used car value may also be less than the market value. It is unlikely it will ever be more. That is the time to buy the car at a discount from the contracted residual value.

    Several of the big backers of lease financing, Chrysler, some New York banks, and others, each lost several hundred million dollars in each of the past several years because they had to sell the off- lease cars on the open market for less than the residual value.

  • Future trends favor the consumer
    The Automotive industry is saddled with excessive employee benefits, i.e. health and welfare and pension obligations for current and retired employees. Worse, there are too many plants worldwide making vehicles.

    If China 's car industry enters the United States in three or four years with the “Cherry" automobile, a talked about vehicle made in China with Chinese wages, the situation will only get worse.

  • Excessive employee benefit plans for the Big Three
    Compounding the problem for some of the manufacturers is that their labor contracts are so juicy that they are better off continuing to give away cars rather than to close a plant continuing to pay benefits to laid off employees.

    This situation will not change for several years until consolidation, plant closings, or bankruptcies have cured the problem. And plant closings will be a last resort. Therefore the glut of new cars will likely continue for a few years and the subsidized lease will continue to be offered.

So lease the car of your dreams today if you ultimately want to buy it. Let the companies financing the lease continue to subsidize your monthly lease payment. About three months before the end of the lease , cruise the used car lots and notice what your car is being offered at and then buy the car (no commissions paid to anyone on this transaction) at the end of the lease and keep several thousand dollars in your pocket.