Tax credit loophole saves drivers $200 on monthly car payments as old buying habits make a comeback – criteria to meet

DRIVERS are just realizing that they could be saving hundreds on monthly car payments – it’s all in the way a vehicle is purchased.

Consumers started considering an alternative way to get automobiles while also avoiding turbocharged auto loan rates and it’s reemerging practice.

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The auto lease is making a comeback this year as the popularity of electric vehicles continues to grow, Detroit Free Press reported.

The leasing option is a way for drivers to see an affordable monthly payment of about $200 or lower.

The average lease payment each month was $517 for a non-luxury vehicle, according to new data found by TransUnion .

In comparison, the average auto loan payment would be $707 a month for a similar vehicle.

Car buyers especially benefit from auto leasing when it comes to wanting to get an EV.

Just about half of all electric car sales involved a lease in the second quarter of 2024, per the TransUnion study.

That’s an increase from around just one-third of the electric car sales for the same time last year.

Only 20.9% of EVs sold were leased in the second quarter of 2022.

It’s a shocking spike until it’s considered that there was a loophole in a key tax credit that was part of the Inflation Reduction Act of 2022.

It gives EV dealers a boost when it comes to the promotion of convincing leases for new electric cars and plug-in hybrids.

“The application of the IRA tax credit is one of the key drivers without a doubt,” senior vice president and auto and mortgage line of business leader at TransUnion Satyan Merchant explained.

“It’s not a coincidence, that’s a big driver.”

Auto leasing has been “up overall in recent quarters,” Merchant told Detroit Free Press .

“But nowhere more so than in the EV market, where leasing has now surpassed financing as the preferred option among consumers,” he added.

The average new car loan rate for a five-year car loan is just under eight percent, according to Bankrate .

It increased from 7 percent in 2023 and it was even lower at 4 percent in March 2022.

Expert Advice on Leasing a Car

Ray and Zach Shefska, the father-son duo making up CarEdge, spoke to The U.S. Sun Motors Reporter Kristen Brown in an exclusive interview on their top tips before signing a lease agreement on a new car.

Leasing a car can be a more viable option for some instead of financing with an auto loan.

Leasing a car for 24 to 36 months can be attractive to many because monthly payments are typically lower than loan payments, though there are some restrictions, like mileage allowances.

At the end of a lease, people can either buy the vehicle out at a reduced price, or they can return the vehicle to the dealership and lease another car.

Before jumping into a lease, Ray gave his top tips to consider, stemming from his 40 years of experience as a sales manager for several dealerships:

1. Learn the interest portion of the lease – or the “money factor” – to understand how much interest you’ll be paying and how much it equates to overall.
2. Negotiate the selling price before discussing the monthly payments – the cheaper the selling price of the car, the cheaper the payments.
3. Accept the premise that you will always have to make a payment, so you can either have a nice car for a cheaper payment, or a lesser car for a higher payment.

Read more here .

For drivers who had terminated an auto lease this year, 38 percent of them leased another vehicle, according to the TransUnion data.

Just under 30 percent financed a vehicle after ending their lease.

In June, new car buyers who took out a car loan to finance their purchase paid an average rate of just above 7 percent for their car loans, according to Edmunds.

Merchant emphasized that car buyers are less rate-sensitive than many imagine.

He explained that consumers are normally more focused on monthly payments.

Merchant believes that lower monthly payments on leases create an opportunity for dealers to work with customers as everyone involved benefits.

He explains that leasing in general benefits the manufacturers and dealers mainly, but the lower payments will bring in customers looking for good, reliable cars for cheaper.

By moving inventory, creating loyal customers who will return in just a few years once the lease ends, and consistently keeping an inventory of gently used cars, dealerships can thrive off drivers opting to lease over buy while providing drivers a good deal.

Financing for vehicles

There are 3 main types of car finance - personal car loans, Hire Purchase (HP), and Personal Contract Hires (PCH).

One of the simplest ways to finance your new car is through a car loan.

It involves borrowing money to buy the motor.

You will need to work out how much you need from the lender – a bank or building society – as well as how long you want to borrow the money for.

But with a personal car loan, you can drive as far as you like, and if the car picks up any damage to the interior, there’s no expectation to have this fixed unless you want to.

Hire Purchase is a handy option that lets you spread costs over monthly payments – until you finally own the car.

HP repayments might be slightly higher than with other options as you’re making regular payments to eventually own the vehicle.

But on the upside, it won’t penalize you if you don’t have a good credit history.

HP finance is secured against the value of the vehicle, so if you’re unable to stick to your monthly installments, the finance company could take the car back.

The third great option, with PCP finance, you won’t own the vehicle during the agreement – it will instead belong to the finance company.

You will be asked to put down a deposit and pay regular installments over the agreed term.

If you decide it’s time to give up your motor, you can simply hand it back or part-exchange for something new.