4 myths about leasing busted

Leasing often gets a bad rap, and no wonder: Dealers have been known to slip bad deals past confused car buyers who simply wanted low monthly payments. But if you know what you're looking for and negotiate smart — and get over the myths below — leasing can be a good deal.

• Buying is cheaper than leasing. If you keep a car well past the day the loan is paid off (or you paid cash to begin with), you save money by buying. But if you trade in your car before the loan is paid off, the value of the trade-in is unlikely to cover the remaining balance on the loan.

For example, if you leased a new Chevrolet Malibu LTZ for three years, you'd pay a "turn-in" fee of $395 at the end of the lease and walk away. But what if you bought the Malibu with a five-year loan and then decided you wanted another car after three years? To match the residual value written into a three-year lease, you'd probably have to sell the Malibu on your own rather than trade it in. Then you'd have to pay off the loan. Buying would leave you about $1,600 poorer.

• It's nearly impossible to negotiate a good deal. Leases are negotiable. But first you need a tour of the jargon. The vehicle price is called the capitalized cost. You should haggle over this just as hard as you would haggle over the price if you were buying. Another crucial term is the money factor. The lower this number, the better (multiply it by 2,400 to get an estimate of the interest rate). Finally, the residual value is the value of the car or truck at the end of the lease.

Ask the dealer to show you deals from several banks, focusing on the money factor and the residual value. You can also go to LeaseCompare

.com to comparison-shop and apply for a lease. Or check out LeaseWise (www.checkbook.org). For $335, the service will shop five dealers in your area.

• You may have to pay hefty fees when you turn in the car. The typical annual allotment of 10,000 to 12,000 miles is stingy, and the 18- to 21-cent-per-mile penalty for exceeding the limit seems daunting. But if you buy a car, you're also penalized for higher-than-average mileage when you trade it in. You can probably negotiate a higher limit in exchange for a higher monthly payment and still save money.

• If you want out early, you're stuck. Several Web sites match people who want to get out of a lease early with those who want to assume a short-term lease. At Lease

Trader.com you pay a fee of $80 to post your vehicle and $150 to complete the transfer of the lease.

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Mark Solheim is a senior editor at Kiplinger's Personal Finance magazine. Send your questions and comments to moneypower@kiplinger.com.