Credit crunch killing car lease deals

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Troubles in the U.S. credit markets may have an impact on how you buy your next car or truck.

Leases subsidized by manufacturers — those deals that make a lot of luxury vehicles affordable on a monthly payment basis for many consumers — may become highly restricted.

Chrysler Financial has announced it is pulling out of the lease financing business. GMAC Financial Services — the largest auto financing company in the United States — and Ford Motor Credit Company have said that they will be less involved in pushing subsidized leases.

GMAC has said it would no longer offer incentive-based leases in Canada, but didn’t outline specific plans for the United States.

There are two factors at work here: The rising cost of borrowing for these lending giants and the collapsing values for a lot of vehicles coming off lease.

It’s not uncommon now for lenders to lose money on leased vehicles. That’s because these vehicles sell wholesale for a lot less than the residual value that was negotiated when the leases were financed three or more years ago.

The drawback on lease values could put automakers in a bind because they have traditionally used low-payment subsidized leasing as a way to clear inventory.

But for that to work, the leasing company must be able to sell vehicles for near their forecast residual value when the contracts are up.

A lot of the vehicles now coming off lease are big SUVs and pickups. Although these vehicles were attractive not so long ago, the resale values have plummeted by as much as 30 percent due to the high price of gasoline.

So what does it mean to consumers?

Your options may now be limited if you’ve always leased your vehicles because it allows you to drive a more expensive vehicle than if you did conventional financing.

Aside from seeing fewer deals on fewer cars, leasing companies may require a larger capital cost reduction — “lease speak” for a down payment.

Making a larger down payment in a lease is not advantageous to a consumer because that’s money you will never get back.

When you put a down payment on a car you’re buying, that’s an investment in equity. In a lease, it’s just reducing the risk of the leasing company because it can be used to reduce the end-of-lease residual.

Savvy consumers with good credit now may want to shop some private leasing companies if manufacturers are no longer going to offer big lease subsidies.

Often, a leasing company not associated with a manufacturer can more closely monitor its long-term risk on leases and still offer an attractive payment.

While it may be hard on some consumers, this shift could turn back the clock to a time when leases were primarily the finance method of businesses that could write off automotive expenses, while the rest of us had to depend on conventional financing.

3 keys to cheaper motorcycle insurance

Dear Terry,
My question is about motorcycle insurance. I am an older first-time motorcycle buyer. What is the cheapest way to insure my motorcycle? I have been insured with the same auto and home insurance company for 12 years with no accidents or claims.

Also, what do I check to make sure I don’t get a “lemon” motorcycle?
— Bud

Dear Bud,
Regarding insurance, your rate will depend on three factors: engine size, cost of the bike and whether you have taken motorcycle training classes. To compare insurance rates, check out InsureMe (a Bankrate company).

Although I have never used the service, there is a company — Cyclechex — that offers a vehicle identification number check service for motorcycles.

Auto credit query shouldn’t ding score

Dear Terry,
I wanted to check into the cost for auto insurance since I have not compared pricing in more than 15 years. However, when I called to make an inquiry, I was told they needed our driver license numbers, Social Security numbers, etc.

I asked why they needed our Social Security numbers and was told they pull credit reports of prospective customers. Does this credit pull affect the credit score? If I check with eight different insurance companies, could that cause an adverse effect on the credit score?

Please advise me, because now I’m dragging my feet to do this comparison since I don’t really want them pulling my credit score until I know if it affects the score.
— Wilma

Dear Wilma,
Your credit situation — along with your driving record — can affect your auto insurance rates. The thinking is that someone with bad credit is less likely to take proper care while driving. So, most agencies will check your credit before giving you a quote.

Since it’s not an application for credit, the inquiries shouldn’t drive down your credit score. But I don’t think you’ll need to check with eight companies for the best rates. A check with about three should give you a good range of what’s out there.

Lender won’t transfer car title to son

Dear Terry,
My mother purchased a car a little over a year ago. She has fallen behind on her payments due to disability. Can I assume the current loan under these circumstances? I’m definitely willing to make the payments in arrears and bring the loan to date.
— Kelvin

Dear Kelvin,
Contact the lender and tell them you want to bring the loan up to date and will be making the payments going forward. The lender should be happy to hear that.

However, the lender will not transfer the loan and the car title to you. Until the loan is paid off or until the car is sold, the loan and the car will remain in your mother’s name.