Car lease deals getting scarce as Big Three pulls out |
|
|
To make loan payments comparable to leasing payments, lenders are likely to further extend terms, says Bill Vogeney,
chief lending officer at Ent Federal Credit Union in Colorado Springs, Colo. However, this strategy is likely to backfire in the long
term, as borrowers will be "upside down" on their cars longer, forcing them to hold on to their cars for a greater period of time than
they normally would, he adds.
This leads consumers to then turn to financing companies to roll over the debt from the extended loan on their old car loan into a
new loan for a newer car, says Neigel, which is already happening in some cases. While this strategy can get you in a newer car, it's not a great
idea, because you continue to make payments on an asset that is worth less than you owe.
Nerad expects financing companies to unveil additional creative financing options, which could include balloon payments
at the end of a low-payment loan period or a change in leasing terms that would leave buyers on the hook for a drop in residual values
rather than the leasing companies.
"If you're offered an unconventional financing arrangement, read the fine print and beware," he says.
Other incentives will also be on the table, such as larger initial discounts and cheaper gas, as is the case with a
recent Chrysler incentive offering $2.99 gas for three years when buying qualifying vehicles, notes David Thomas, a senior editor with
Cars.com. Car manufacturers are attracted to these incentives because they can quantify the cost better than the future value of a car
coming off lease.
Finding a lease
Die-hard car leasers fall into two camps: those who want a new car every two or three years and those who want a low payment. You may be
out of luck on the low-payment front, but if you still want to lease so you can avoid maintaining a car, you can find financing, especially
if you have good credit. Also, better leasing deals may be available on smaller cars that are more likely to hold residual values, says
Scott MacMillan, a commercial representative for Nielsen Automotive Group in New Jersey.
Going forward, the best strategy to find a competitive lease arrangement is to shop around for the best lease terms before
you walk into a car dealer, just as you would shop around for a loan commitment, Nerad says.
"A wide variety of national and regional financing companies, banks and credit unions are still offering leases and you
can shop online for terms in many cases," he says.
However, the lease financing market is not likely to expand beyond the players that are currently involved due to the
expense and uncertainties of the leasing business, notes Neigel.
"Many big banks have never made much money on leasing, and starting a leasing business is a difficult endeavor," he says.
Another option is lease-trading sites, such as LeaseTrader.com and
SwapALease.com, which are companies that serve as intermediaries between consumers
who want to get out of a lease and those seeking to get into one. Many financing companies and car dealers also offer vehicles for lease
on these sites. For more information, check out "Breaking
a car lease just got easier."
The Big Three eventually might reverse course and re-enter the leasing market.
"We've certainly seen auto manufacturers reverse course as the market shifts in one direction or another," says Nerad. "The
Big Three's desire to stem losses on vehicle leases may be less compelling than their desire to sell cars in the future."
|
