Buying a new car is exciting. Even if your budget is limited, there are lots of models and options to choose from. You can spend days and even weeks having fun while deciding what you want to buy. Once you have made this decision, most people then start to look at the auto finance options. This is not fun and folks tend to rush through the process, focusing on the monthly installments and the duration of the loan. They usually choose what they consider the cheapest. But auto finance is a complex issue with a lot of variables to consider. Let’s look at the pros and cons of the first choice you have to make - buying or leasing a car.

OWNERSHIP: When you take a loan and buy a car, it becomes your property, subject to the installments being paid on schedule. You can use the car how and as much as you want. The installments you pay cover the full cost of the car as well and the interest being charged on the loan. When the loan is finally paid off, your relationship with the leader ends and you can do what you like with your car. Leasing does not confer these rights on you. When you lease a car, you do not get ownership of the car. What you get is the right to use the car for the period of the lease. You are only paying for the use of the car (which includes a projected monthly mileage) and the depreciation the car will attract during the period of the lease, plus some usage charges. At the end of the lease period you have the option of returning the car to the leasing company or paying the residual value and keeping the car. Leasing is often a popular form of auto finance with professionals who can get some tax write off on the lease payments.

INSTALLMENTS: When buying a car your monthly installment covers the complete cost of the car, interest charges. When leasing, your monthly payments (installments is not the right word here, although it is commonly used) are lower than when you buy the car because you are not purchasing a car, only paying for the right to use it plus rent and taxes. Also, your projected monthly usage affects the monthly payment. The more you use the car, the more you will have to pay. At the end of the lease period you are left without a car, unless you decide to buy it.

INITIAL COSTS: Buying a car entails making a down payment, taxes, registration and other fees that the auto finance company may charge. In the case of leasing, what you pay is the first month’s payment in advance, a security deposit which is refundable after adjustment for damages, excess uses etc., a capitalized cost reduction charge to cover the depreciation, and registration and taxes.

There are many other differences in using auto finance to buy or lease a car. The trick is not to let the seemingly lower cost of leasing influence your decision. Remember that when a car is leased you do not own it and have not acquired an asset.

By Laura Glasser
Auto manufacturers are pulling the plug on lease programs to avoid steep losses on returned sports utility vehicles and other fuel-inefficient cars that have lost significant value because of record-high gas prices.

The carmakers are also getting hit for using overzealous lease terms to win customers. Chrysler, for one, offered lower monthly terms on a lease, with a higher buyout figure at the end. But that did the company little good when drivers returned the car, now worth less than expected because of its poor miles-per-gallon performance.

But a Long Island company says it sees a lot of opportunity in all that pain.

Hauppauge’s Groovecar said it plans to ramp up its lease-lending business to make up for the industry contraction.

The auto loan processor for credit unions already handles 400 to 600 leases per month, a number that should double with the new push, said David Jacobson, Groovecar’s chief executive.

Jacobson added that it’s the lease terms, not the leasing industry that hurt carmakers.

“We could never write a lease on these vehicles because the risks that Chrysler was willing to take meant we couldn’t be competitive,” Jacobson said.

Chrysler is hardly alone in losing in the game of risk. Ford, for example, said last month that it has already taken a $2.1 billion hit from leases and General Motors wrote down $716 million from the products.

“The manufacturers are going to be taking hits for the next few years because a lot of leased cars are still on the road,” Jacobson said.

Some big lenders, too, are feeling the pinch. JPMorgan Chase will no longer fund Chrysler leases and Wells Fargo has abandoned leasing completely.

Meanwhile, Groovecar continues to offer leases on the Jeep Wrangler and Jeep Grand Cherokee.

Farmingville-based Teachers Federal Credit Union, one of the participants in Groovecar’s leasing program, is also looking to get a boost from Chrysler’s exit.

“This is a product that, until now, we have not been able to compete in,” said Nancy Orlando, senior vice president of credit at the credit union.

Orlando said leasing as a whole has become a big part of Teachers’ business, with more than $50 million in leases booked through the first six months of this year.

Nassau Educators Federal Credit Union is also seeking a bump from Groovecar. But other credit unions, including Suffolk Federal Credit Union, said the risks outweigh the rewards.

Bill O’Brien, chief executive of Suffolk Federal said, “It’s enormously competitive and it will be even more competitive as you need more ways to move cars in a reasonably depressed car market.”

O’Brien added he wasn’t about to approve aggressive lending terms just to win over customers.

But Jacobson said Groovecar doesn’t plan to, and never has, taken risks. The company, in the leasing business for 14 months, will use rebates from the manufacturers as lease down payments, which drop monthly payments.

That’s standard operating procedure, he said.

“Just because Chrysler got out of leasing doesn’t mean we could be competitive. We can’t be as aggressive as they were. The rebates are the only reason the math on this works,” Jacobson said.

Laura Glasser can be reached at laura.glasser@libn.com.