Leasing Is Increasing Amongst New Car Customers
As more consumers are priced out of a new car purchase, they are turning to leasing as an alternative option
Here at The News Wheel, we’ve already written about how the increasing transaction prices for new cars are affecting consumer behavior. More and more drivers are choosing to buy used, as they can’t afford a new vehicle.
Recent reports suggest that another buying option is also on the rise: leasing.
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New car transaction prices recently hit a new high of $34,000 on average. Unfortunately, car prices have grown faster than most American’s wages have during the same period.
As a result, consumers are searching for other buying methods to obtain the modern automobiles that they want. Many of those consumers are turning to leasing as an option.
“We’ve seen more of a shift to leasing because leasing payments tend to be less than buy or purchase monthly payments,” explains Wes Lutz, chairman of the National Automobile Dealers Association.
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Yet, leasing might not remain an attractive option to these buyers for very long. After all, the average pricing for a lease is also increasing.
Customers who began leasing three years ago did so during an ideal time. Interest rates were low and residual values were high.
Now, at the end of their three-month lease, those drivers are entering the market at a less-than-ideal environment for leasing. A relatively strong economy has led to rising interest rates.
Furthermore, leasing is not without its disadvantages. While monthly payments for a vehicle may often be lower than what consumers would pay if they bought the vehicle outright, those customers will never have the chance to pay off their vehicle. Payments will be due during the entirety of their leasing period.
With an increasing amount of customers are turning away from new car purchases, sales are expected to fall during the last part of 2018. Still, with the richest Americans still choosing to buy new, the profitability per vehicle should increase at the same time. Those drivers with less income will simply have to settle with leasing a vehicle or buying used.