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.

Almost 13 years after a state law took effect aimed at ending disputes over “excess” wear charges on returned leased cars, they’re still a potential minefield for consumers, experts say. And dozens of such disputes make their way each year to an arbitration program run by the state attorney general’s office.

So, consumers should proceed with caution when signing a lease and again when it nears its end, experts recommend. “When you lease a car, the sticker shock comes at the end, not the beginning,” said Jack Gillis, a spokesman for the Consumer Federation of America and author of “The Car Book,” an annual buyer’s guide.

But a lot of the guesswork was taken out of the process by the New York State Automobile Retail Leasing Act - which took effect with leases written after Aug. 11, 1995. The law limits excess wear charges to the actual cost of repair, specifies that consumers can appeal to lenders and set up the attorney general’s arbitration machinery. “Our office receives and acts upon dozens of these requests for arbitration and the vast majority of them end with an agreement between the two parties,” said a spokesman for Attorney General Andrew Cuomo.

The law has been interpreted by Cuomo’s office to apply also to “balloon” loans, which, like a lease, offer low monthly payments. In a balloon note, the consumer, not the lending institution, owns the car and at the end of the term can opt to return it as final payment. As with a returned lease car, it will be resold and, so, is subject to inspection by the lender.

Balloon notes were popular from 2002 until 2005 in New York when some lenders stopped offering leases because of the state’s “vicarious liability law,” which, until Congress took action in 2005, made lenders responsible for damages arising from accidents involving leased cars they owned.

One consumer who went that route was retired building contractor Richard Stone of Dix Hills, who financed a Subaru in 2004 for 48 months. He returned the car in May. He said that in June lender Chase Auto Finance wrote to him, saying that a noise under the hood suggested engine trouble and that there were several dings and scratches. Grand total to make the car right again: $1,725.

“It really got me aggravated,” Stone, 67, said. “It was like someone trying to pick your pocket.”

He telephoned Chase and disputed the need for engine repairs or cosmetic restoration. Ultimately, nearly all of the charges were waived, including a $300 “disposition” fee, he said. He paid only $92.

Chase wouldn’t comment on Stone’s case, but spokeswoman Mary Kay Bean in Detroit said the same criteria apply to leased or balloon loan vehicles.

Elaine Littwer, legislative coordinator of the National Vehicle Leasing Association, said it’s important for consumers to understand that damage reduces the resale value of a vehicle. “The ‘I don’t own it and I don’t care’ attitude ends up costing them money,” she said.

Brian Rauer, currently in charge of the Long Island and Mid-Hudson offices of the Metro New York Better Business Bureau, said consumers should read the contract before signing a lease; inquire about any “turn-in fees;” and be sure they understand mileage limitations.

“It can be a tricky process,” he said.

ENDING A LEASE PAINLESSLY

Take care of the car as if you owned it. Cigarette burns or tears in the upholstery, certain dents, scratches and mechanical flaws can cost you big-time if the lender deems them beyond normal wear and tear.

Read your lease contract - they’re all worded pretty much alike in New York State. Pay attention to the sections on wear and tear, excess mileage and processing fees.

Just before turning the car in, take clear photos of the interior and exterior, including the odometer, for your own records should a dispute arise over mileage driven or whether specific damages are excessive - and also to protect yourself against damages that occur after the car was turned in.

Consider having the car detailed before you return it, to remove scratches and stains inside and out.

You might want to have your own appraisal done to dispute that of the lender, but it has to be by a state licensed appraiser.

To take advantage of the state attorney general’s arbitration program, obtain a form at a regional office, or call 800-771- 7755. Complete it and mail to the New Car Lemon Law Arbitration Unit at 120 Broadway, New York, NY 10271. Long Island regional offices are at 200 Old Country Rd., Suite 460, Mineola, and 300 Motor Pkwy., Hauppauge. The attorney general’s Web site is oag.state.ny.us.

- TOM INCANTALUPO

SOURCES: NATIONAL VEHICLE LEASING ASSOCIATION, BETTER BUSINESS BUREAU, NEW YORK STATE ATTORNEY GENERAL’S OFFICE, CONSUMERS UNION, CHASE AUTOMOTIVE FINANCE.

Consumers Can Still Benefit from Leasing New and Used Cars

CINCINNATI–LeaseCompare.com, the leader in online direct-to-consumer auto leasing, today announced that it has the financial resources to provide leasing for those who want to lease Chrysler and other vehicle makes, including SUVs.

As an independent leasing company, http://www.LeaseCompare.com gives consumers access to new and used car leasing from banks, credit unions and other finance sources. Site visitors can instantly compare payments, rates and residual values from each source and select the best lease for their driving habits.

“LeaseCompare.com offers an alternative to a manufacturer lease.” says Tarry Shebesta, President of LeaseCompare.com and auto leasing expert. “From one location, consumers can shop multiple lease offers from different sources and secure their lease online.”

“Even though Chrysler and other manufacturers are pulling back from leasing, there are still competitive lease options available to consumers if they know where to shop” comments Shebesta. “LeaseCompare.com offers such a marketplace.”

Top reasons consumers prefer to lease:

• Lower monthly payments
• Little or no down payments
• No trade-in worries
• Avoid upside-down loans
• Lower sales tax (in most states)

Shebesta also notes that “Dealers looking for leasing sources to offer their customers can use the programs available on LeaseCompare.com through a dealer-only website http://www.DoALease.com.

Just before it’s that time again to buy that new car again, think about the possibility of leasing one instead. Leasing a car offers many advantages that you might not have considered in the past. Read our list of advantages of car leasing below before you make that huge new car purchase.

A new model every two or three years
Car designs change about as fast as women’s fashion. Every two or three years a majority of car manufactures update and improve design on their vehicles. Interior room improves; gas mileage increases; and parts last longer. Why wait five or six years to take advantage of better design and quality? It also feels good to drive a sharp looking late model car compared to an older, not as stylish car, especially if you’re in sales and you need to impress a client. Wouldn’t you rather buy a house from a real estate broker that drives you around in a new BMW versus an older model, less attractive car?

Less worry about the repair bill
With a leased car, the warranty covers most, if not all problems (excluding normal maintenance such as lube and oil and brake jobs). For instance, if your car’s radiator cracks, it will be covered in the lease. If you buy your car, and the radiator cracks after the warranty has ended, then you’ll be stuck with the bill. If it’s a major item, like an engine mount, etc., the cost savings can be enormous with a leased car. With an older model car, figure on spending a few hundred dollars every few months or so on ongoing maintenance or replacement costs. That doesn’t even include the inconvenience of taking your older car to the mechanic every so often.

A Lexus versus a Chevrolet
With low monthly payments, a car lease can get you into that luxury car you always fantasized about. With a traditional car purchase, a Lexus might be out of your league. However, with a car lease, driving a luxury car becomes a reality with low, affordable down payments. Where you might be paying $800 or so for a car loan for a purchase, you might be only paying $500 or so for the same car, with a small down payment.

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