Issue date: June 27, 1999

In this issue
How to decide: Buy or lease?
Best deals

Buy or lease your next car? Here's what you need to know.

here's good news and bad in the car market. Good: Prices have held steady from 1998. Bad: Carmakers aren't offering the same tempting incentives as in years past, particularly if you want to lease. What's going on?

When you lease, you pay for the depreciation (decrease in value) during the time the car is in your possession. That amount is the difference between the price you pay (capitalized cost) and the car's worth at the end of the lease (residual value). The smaller the gap between those figures (and the lower the interest charge), the lower your monthly payment. So when a company wants to move cars, it reduces interest rates or raises residual values.

From 1995 to 1997, residual values were "ridiculously high," says Michael Kranitz, founder of LeaseSource (www.leasesource.com). When those leases expired, companies found out a car wasn't worth a 68% residual value, for example, but 58%. Last year, many leasing firms saw losses up to $1,500 per vehicle. Result? Dwindling incentives now.

So how do you decide whether to buy or lease?

Ask yourself four questions.

1. How many years will you have this car? If your answer is three or less, you're better off leasing. At four, you could go either way. More than four, buy.

2. How many miles do you drive a year? If it's more than 15,000, you should buy. Leases usually are figured on mileage of 12,000-15,000 a year. Drive more and you'll pay an additional 10-15 cents a mile.

3. Do you take good care of your car? If so, you'll be fine when it comes time to return a leased car. But if not, buy. Otherwise, you could find yourself looking at a hefty bill for "excessive wear and tear."

4. Do you use the car for business? Consider leasing. When you buy a business car, the IRS limits the amount of depreciation you can write off. If you lease, you can write off up to your full monthly payment.

Prepare to negotiate. If buying, focus on the invoice price and the interest rate on financing. If leasing, focus on those two plus the car's residual value. Spend a few hours online before you hit the showrooms to nail down attractive numbers. Pressure the salesman for all the financing options.

Best deals ahead

Tips from Art Spinella, CNW Market Research, Bandon, Ore.

Best overall leasing deals: Cadillac Seville and Eldorado.

Large SUV leasing deal: Lincoln Navigator.

Mid-sized cars.
1) A redesigned Ford Taurus arrives this fall, so expect deals on the current model (above) in August-October.
2) Toyota is offering rebates on the Camry in some parts of the country. Check locally.

Compact cars. Expect deals on the Escort in September and October as Ford introduces the new, higher-priced Focus.

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