Auto leasing has become an increasingly popular choice for consumers looking to finance a new vehicle. Why? It’s cheaper than buying one. (At least, the monthly payments are lower — it could end up being more expensive in the long run.)
“Leasing continues to grow in popularity among car shoppers, especially those hoping to stay within a strict monthly budget,” said Melinda Zabritski, senior director of automotive credit for Experian Automotive, in a news release about 2013 fourth-quarter auto data. “Our analysis this quarter showed that the average monthly lease payment was $51 lower than the average loan payment, which can make a big difference to consumers trying to stretch their dollar.”
The average monthly payment for a new car loan was $471 in the fourth quarter; a lease was $420 on average. Experian Automotive has been releasing data about auto financing since 2006, and leases hit a record high last quarter, making up 28.4% of all new-vehicle financing. The year before, it was 24.8%.
Here’s something to keep in mind when looking at those low monthly lease payments — you may offset those savings if you exceed the mileage limit at the end of the lease, so you need to consider the bigger picture when deciding between a lease or loan.
Used cars, of course, are the cheapest option. The average monthly payment on a used car loan was $352 last quarter, which is up from $348 in fourth quarter 2012.
Credit Standards Easing
But if you’re really looking for a new car, it’s becoming easier to get financing: The average credit scores for borrowers taking out new car loans and leases declined last quarter. The average lessee had a 719 average score (down from 735 in fourth quarter 2012), and the average credit score of a new car loan borrower was 715 (down from 724 in 2012).
“We are still seeing remarkable stability in the automotive finance industry, even as lenders continue to ease slightly on credit standards to provide loans and leases,” Zabritski said in the news release. “What makes this good news for consumers is that the more credit-challenged car shoppers who need a vehicle may find that they have more financing options to choose from and can more easily shop around for the best rates and terms.”
You want to avoid applying for credit you don’t qualify for. Before you hit the dealerships, it helps to have a good idea of where your credit score falls. You can see your credit scores for free on Credit.com, and if you think your scores need to improve before you get a car, the account tools will show you what you need to do to boost your credit standing.
More on Auto Loans:
- Are There Car Loans for People With Bad Credit?
- What to Do If You Can’t Make Your Car Payments
- Top 5 Worst Car Buying Mistakes