Lease terms are getting funkier.
Some lenders are rolling out deals for 30-month, 39-month and 42-month leases, in addition to tried-and-true leases with 24-, 36- and 48-month terms.
“The unusual-length terms that you are seeing are really marketing tactics to keep the monthly payment down,” says Michael Kranitz, author of
Look Before You Lease: Secrets to Smart Vehicle Leasing.
About 15 percent of all leases in 1998 had odd-length terms, according to Art Spinella, vice president of CNW Marketing/Research in Bandon, Ore.
These funky lease terms can mean good deals for consumers with special needs, but as with any lease, be sure to
crunch the numbers before signing on.
How lease length affects price
Remember, the shorter the lease term, the steeper the monthly payment tends to be. In a lease, you pay the difference between a car’s current value, its “capitalized cost,” and the amount the car is expected to be worth at the end of the lease, its “residual value,” plus a monthly financing fee.
Most cars lose about 40 percent of their value after two years and about 50 percent of their value after three years. So a 36-month lease, in which you have three years to pay off 50 percent of a car’s value, would have lower monthly payments than a 24-month lease, in which you have two years to pay off 40 percent of the car’s value. A 27-month and 30-month lease would fall somewhere in between.
“Leasing for 30 months is usually a lot smarter than leasing for 24 months as long as you’re paying attention to the numbers,” says Mark Eskeldson, an auto expert who runs
CarInfo.com, a consumer information and advocacy Web site.
Many lenders sweeten these odd-term deals by giving customers, say, 39 months to pay off a lease based on a car’s value after 36 months rather than 39. So monthly payments dip even lower.
Toyota and its sister company
Lexus did just that in April and May on leases for Toyota 4Runners, Land Cruisers and Lexus RX 300s and LX 470s. Customers had the choice of a 36-month lease term or 39-month term based on the auto’s residual value at 36 months.
By opting for the longer 39-month lease, customers shrank their monthly payment by $20 on a 4Runner, $33 on a Land Cruiser, $25 on an RX300 and $44 on an LX 470, says Craig Brazeal, national marketing manager for Toyota Motor Credit Corp. and Lexus Financial Services.
Keep in mind that while longer leases lower monthly payments, they’ll actually increase the amount of money you’re going to pay overall. So while an odd-length lease deal may give you more breathing room in your monthly budget, it may cost you more in the long run.
Watch the warranty
Another thing to consider when looking at longer odd-term leases is a car’s warranty. Most cars come with a three-year bumper-to-bumper warranty. Many consumer experts urge people not to choose a lease that extends beyond the car’s warranty.
“I would not tell people to lease longer than 36 months because you’re going to pay for repairs on a car you don’t own,” Eskeldson says. “If the air conditioning or transmission goes, you could be out a couple of thousand dollars.”
With 39- and 42-month leases, customers can gamble that nothing serious will go wrong with the car after the warranty expires, or they can purchase an extended warranty. The trouble with an extended warranty is you can’t simply buy protection for the months you’ll be driving past the original warranty. You have to pay for covering the whole lease term and then some, all at the beginning of the lease.
Take Saturn. It has been offering a 39-month lease promotion since January. Each Saturn comes with a bumper-to-bumper warranty that expires after 36 months, so to cover those extra three months of a 39-month lease, you would have to buy a 5-year extended warranty at the start of the lease. The unused portion of the warranty would be returned at the end of the lease, minus a $35 cancellation fee.
A five-year extended warranty with a zero deductible would cost $815, with $250.25 refunded to the customer at the end of the lease. Total cost: $554.75.
Some independent finance companies such as Quest Financial Corp., which provides lease specials on
LeaseSource.com, offer full-protection leases that cover repair costs through the length of the lease.
“The last thing you want is to pay for a new transmission when you have to turn in the car the next month,” says Jerry Mahoney, a vice president at Quest. “We’ve eliminated that fear.”
Consider an independent lease company
Many independent leasing companies are quite willing to do odd-length leases. Some have offered lease specials with unusual terms for years.
“An independent leasing company is obviously going to have the most flexibility,” Kranitz says. “The independents are far more likely to have those types of specials.”
Most deals from finance companies of the auto manufacturers tend to be more cookie-cutter in nature. For example, Ford Motor Credit offers 24- and 36-month leases only. While independent finance companies may offer more flexibility, some lease specials from auto companies can be tough to beat.
“With independent finance companies, it’s hard to find residual values inflated to astronomical numbers like Ford and GMAC can,” Eskeldson says.
Aside from occasional promotions, many car companies will only offer an odd-length lease term upon a customer’s request. An exception is
Volvo, which boasts on its Web site about its ability to customize a lease term for each driver.
Make the lease match your needs
Unusual length terms are good options for people who may only need to lease a car for a limited amount of time, like 20 or 27 months.
People with their hearts set on a particular kind of a car can coordinate their lease terms to end in September and October — when manufacturers introduce their new models.
Say you already know you want to lease the new model from Lexus that rolls out in the fall of 2001. You could sign on for a 27-month lease now and when it ends you’ll be ready to hop into that new Lexus fresh from the factory floor.
You’re also likely to get a better residual value on a lease that is signed in the autumn.
“The best residual (value) on cars are when cars are relatively new: September, October. New model residuals are pretty high,” Eskeldson says. “In May or June the residuals should be lower and that means the payment will go up.”
Because not everybody offers odd-length leases, it can take a little effort to comparison shop.
“Ask a bunch of dealers. Ask a bunch of independent leasing companies,” Eskeldson says. “Do a lot of shopping around. It’s a lot of work but it’s the only way to get a good deal.”