Car Prices Too Steep to Buy? How About Leasing?
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Here's your money briefing for Monday, August 30th. I'm J.R. Whalen for The Wall Street Journal. Good luck trying to buy a car these days without draining your bank account. The global chip shortage has severely reduced the number of cars dealers have on hand, and in turn, that's driven up sticker prices. In this tight market, many have considered leasing instead.
So the pandemic has actually upended this equation where you get a new car, whether buying or leasing, you know, you expect for it to depreciate and be worth much less at the end of your ownership of the vehicle. And that's just often not the case anymore.
So what are the financial advantages to leasing and what should consumers look out for in the fine print of a leasing agreement? Coming up, our personal finance reporter, JJ McCorvey, will join us with what you should know before leasing a car. That's after the break.
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What is causing current car prices to spike and lead shoppers to consider leasing?
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Rising car prices might force many Americans to put off driving a new car off the lot, so maybe it's time to consider leasing a car. WSJ personal finance reporter J.J. McCorvey kicked the tires on the idea of leasing, and he's here to talk about the pros and cons that consumers need to know before signing a lease agreement. J.J., thanks for being with us.
Thanks, JR. Happy to be here.
So, J.J., let's start with this. How does leasing a car differ from outright buying one?
So when you're buying a car, you typically have your standard down payment for the amount of the car, but then you get financing for the rest of the car. So you basically take out a loan to help you pay for the value of the car and you pay that through monthly payments. When you lease a car, there usually is a down payment, but you typically have lower monthly payments because you're paying a price based on the difference between the actual retail value of the car and then the expected value of the car at the end of your lease.
How would the interest rates differ in buying versus leasing?
Well, right now, as experts told me, interest rates are still really low. So the interest to lease a car versus financing to buy a car are still relatively low. So, for example, according to Edmunds.com, the car shopping website, the national average APR for leases right now is 3% versus 4.5% for dealer financing. And that's on like a new car.
But even when somebody sets out to get a new car, the idea of leasing isn't always top of mind as an option. So why are people considering leasing now?
Well, like I said before, interest rates are low. So I think a lot of consumers want to take advantage of that. But it's still generally cheaper to lease a vehicle. And as you know, we have been in pretty dire financial straits in the country because of the pandemic. And so I think leasing has become a more attractive option. But also kind of getting more to the heart of the matter, there's a chip shortage globally. And so that has affected the amount of inventory that dealers have, which have caused used car and new car prices to skyrocket, which is driving people towards leasing.
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