Car Leasing Chaos: What's Right for You

If you want to lease one of Detroit's big vehicles, things just got a lot more complicated. Is it worth it anymore?

With so many auto financing companies getting out of the leasing business, you might think they don't want you to lease anymore.

Leasing really makes sense if you're absolutely sure you don't want to keep a vehicle longer than the term of the lease. It's sometimes even sold as a way to "try out" a car before buying it (bad idea).

But if you want to hold on to a vehicle for a while, it makes more sense to buy one with traditional financing. That's because the total cost of purchasing a vehicle after you've leased it will be a lot higher.

And with lease rates likely to rise, especially on large trucks and SUVs, financing will start looking even more attractive. Beyond the cost, it's already simpler than leasing, and recent changes will only make it more so.

At one time, you could reasonably assume that a car company's "captive financing arm" would get you the best lease deal possible. After all, a manufacturer-affiliated auto financing company is there to make that manufacturer's products as attractive as possible.

But Chrysler Credit recently said it was getting out of the auto leasing business altogether. That doesn't mean you won't be able to lease a Chrysler 300 or Jeep Grand Cherokee, but you'll be doing it through some other financing company. Ford's (F, Fortune 500) credit arm and GMAC, which has a relationship with General Motors (GM, Fortune 500), have said they were tightening rules for leases.

Some independent financing companies say they're getting out of the leasing business. On Wednesday, Wells Fargo (WFC, Fortune 500) said it wouldn't finance auto leases after this month, and Chase Auto Finance said it wouldn't write leases on Chrysler Corp. products.

When you lease, the finance company buys the vehicle and sells it when the lease is done. The customer sends in monthly payments that are calculated to recover the value the car will lose during the time of the lease, plus some profit for the financing company.

But as gas prices spiked over the past year, values for used trucks and SUVs plummeted. Monthly payments were no longer enough to cover the decline in the vehicles' value, which stuck financing companies with huge losses.

If It's Still on the Table

All of this makes it even more crucial to compare your options if you still want to lease.

• Before you go to a dealership, check with a local bank or credit union to see what they can do for you.

• Make sure to look at all the costs in the lease plans you're considering. Besides monthly payments, there could be up-front costs and closing costs.

• Check the number of miles you're allowed to drive the car during the lease term. Make sure it more than covers your actual driving habits.

• If you're leasing an imported car, it's more-or-less business as usual, but leases on large vehicles, no matter what the make, will probably be more expensive.

It's Not Going Away

This situation probably won't last forever. Auto finance companies are pulling back in response to specific market conditions.

"We certainly don't see leasing going away," says John Sternal, a spokesman for LeaseTrader.com, a company that specializes in helping people get out of leases early.

"It's all about making corrections so they can be more competitive going forward," he said.

Meanwhile, history dictates that the values of used SUVs and trucks will recover, says Paul Taylor, an economist with the National Automobile Dealer's Association.

"When gasoline prices came back down," in the past, he said, "prices of large vehicles generally recovered."

Ultimately, that will mean that financing companies for domestic cars will once again be able to offer leases at lower costs. And they will have an incentive to do so, Taylor said, because making it more difficult or expensive to lease gives an advantage to competitors.

No matter what, Taylor said, there will be customers who want to lease and there will be companies willing to help them.