Relaxed credit, budget cars accelerate leasing to record

Once used mostly to move luxury cars, leasing has reached record levels, helped by easing credit restrictions and a move downmarket.

Leases on Jaguars and BMWs remain plentiful, but the most-leased cars in America are now the Honda Civic, Toyota Camry, Honda Accord and Hyundai Sonata, according to Experian Automotive, an arm of the consumer credit-rating company.

Consumers gravitate to leases - essentially long-term car rentals - mostly because they offer lower payments. Last year, the median lease payment was $361, about 20 percent lower than the median $434 loan payment on a purchase, according to auto information company Edmunds.com.

Shoppers have pushed leasing to a record 25.7 percent share of new-vehicle sales in the first quarter of this year, up from just 16.3 percent in 2004, according to Edmunds.

Leasing attracts buyers partly because a new car requires minimal spending on maintenance items such as tires and brakes over the life of the lease.

The drawback? Never getting rid of the car payment. But Jerry Festa, a Los Angeles insurance agent who likes the “simplicity and convenience,” figures that’s a fair price for always having a new car under warranty.

At the end of the contract, usually 36 months, most consumers return the car and pay for a new lease or purchase. You walk away, regardless of how much money you put into monthly payments and any upkeep.

Leases also offer the option to buy the car at the end of the contract, but at a value determined when the lease starts - which may be higher than market value when it ends.

Consumers also need to be circumspect, even when the lease deal appears especially attractive.

An advertised $249 monthly payment, for example, doesn’t include tax and registration fees, which immediately raise it to about $275. Higher lease rates will apply to people with lower credit ratings. And many leases carry substantial down payments or other upfront charges, Reed said.

Lease contracts typically have big penalties for crossing over the 12,000- to 15,000-mile mark.