New York -- Looking for a cheaper way to drive a car? Think about leasing your wheels instead of buying them.
In the past, car leases cost less per month than an auto loan but were more expensive over the long run. In many cases, that's no longer true. The major automakers now provide price subsidies to those who lease, in order to move cars off the lots. This can make leases cheaper than loans and sometimes even cheaper than paying cash.
When you lease a car, you don't pay full price. Your payments cover only that portion of its life that you'll actually use.
Here's an actual example, on a $19,945 Mazda 626LX whose price is negotiated down to $18,800. If you buy it with a five-year loan and a 7 percent down payment, you'll pay $376 a month. If you want to turn it in after just three years (as many drivers do), you have no equity in the car. The money that you still owe on the loan just about equals what the car is worth.
On a three-year lease, however, you buy only the car's first three years of life. That reduces your cost -- in this example, to a modest upfront payment plus $333 a month, a $43 saving.
The savings on leases vary from dealer to dealer. Ford's best deals are on two-year leases. Others emphasize three-year leases.
Today's bargain leases might be cheaper even for those who want to keep their cars for years. That's because of what happens when the lease is up.
At that time, you can typically turn in the car or buy it at a price guaranteed when the lease began. Many turn-in values are currently set unusually high because that reduces the price you have to pay each month. When the lease is up, however, the car may be worth less than the guaranteed value. You can offer to pay that lower price and it will probably be accepted. Result: You now own the car for a lower total cost than if you had taken an auto loan and bought it new.
Whether it's cheaper to lease when you could buy for cash depends on what you'd do with the money if you didn't spend it on a car.
Leasing is generally better if your cash would otherwise earn at least one percentage point less than the loan interest rate built into the lease's monthly payments, says Randall McCathren of Bank Lease Consultants in Nashville, Tenn. For example, if the lTC lease's built-in financing rate is 5.5 percent, your cash would have to yield 4.5 percent or more. Unfortunately, that internal lease rate is not disclosed in the leasing agreement. But the auto dealer knows it, so press him to tell.
Some more leasing tips:
* Bargain down the price of the car, then ask for lease payments based on that price.
* Don't take a lease for a longer period than you expect to drive the car. If you quit the deal early, the car's turn-in value will be less than the sum you owe on the lease, and you'll have to make up the difference. In the past, you also had to pay the difference if the car was stolen or wrecked. But leases from major companies now insure you against this risk. Be sure you're covered.