(Article by Mark Solheim from Money Magazine, November 2004)

Leasing is not a mortal sin of money management. For some drivers, in fact, it makes sound fiscal sense.

To hear the critics wail, you'd think leasing a car is as bad for your finances as smoking cigarettes is for your health. Does that mean you're a closet wastrel if you've even been tempted by ads that trumpet affordable monthly payments for a new car? Or, worse, that you are hurtling down the highway to financial ruin if you've already given in?

Relax. Leasing is not a mortal sin of money management. For some drivers, in fact, it makes sound fiscal sense. Leasing's not for everyone, but there's no reason to scorn the 15% of our fellow travelers who choose leasing over buying.

As I write this in September, Honda is pushing a two-year lease on its popular Odyssey minivan. With a $1,500 down payment (called a capital cost reduction on Planet Leasing), the payments on a van that costs $28,980 are just $259 a month. Buy the van with the same down payment and a 6% loan, and your payments would be $480 -- for five years.

Leasing often gets a bum rap because the lingo can make your head spin. It's difficult to compare one lease with another, not to mention to compare leasing with buying. And it can be tough to get a handle on leasing because the decision to lease or buy often depends on your mind-set. "A lot of people are freaked out by having to turn in their car at the end of the lease," says Phil Reed, author of Edmunds.com's Strategies for Smart Car Buyers . "What they fail to realize is that they got the first years of a brand-new car's life."

One of the biggest criticisms of leasing is that in a buck-for-buck comparison of leasing and buying, leasers usually shell out more money. That's because, after the loan payments are done, buyers get to keep the vehicle (pay cash and you come out further ahead). If your modus operandi is to buy a car and run it till it sputters and dies, leasing isn't right for you. But you're a good candidate, Reed says, if you've decided that you're always going to have a car payment -- as many drivers do now that six- and even seven-year loans are gaining popularity. It's a good bet that you can drive more car for less money if you lease. You'll never actually own the car, but who really owns a car when the bank holds the title until the loan is paid off?

A few other advantages: A lease usually ends about the same time as the warranty, so you probably won't pay for any repairs. You won't have to worry about whether you'll get a fair deal on a trade-in. In most states, you pay sales tax only on the monthly payments rather than on the full value of the car. Plus, many of today's leases include gap insurance to cover the difference between the lease payoff and an insurance settlement if the car is totaled or stolen.

Yes, there are early-termination fees if you change your mind. But if you finance a car and bail out before the loan is paid off, you could easily owe more on the loan than the car is worth. And it's true that you pay extra for exceeding the 10,000- to 15,000-mile yearly limit typically written into a contract. But buyers who rack up high mileage also pay a penalty: lower trade-in value.

BMW recently offered to lease a $41,770 525i sedan for $499 a month for 36 months (that's after you pay $3,499 at signing, plus taxes and tags). The secret to the easy-to-take payments: BMW builds in a generous 61% residual value for the car, compared with the 53% residual estimated by Automotive Lease Guide (ALG). That $3,340 bonus trims nearly $100 off the monthly payment.

Mazda was recently pushing a 48-month lease on the sporty 2004 Mazda6 S for $259 a month with $1,500 down. Payments were held down by a generous 41% residual, a 3% interest rate and a $1,500 rebate. If you financed the car with a 6%, five-year loan -- assuming you haggled the price down to $22,300, put $1,500 down and also applied the $1,500 rebate -- your payments would be $373.

You might score a leasing deal on a 2005, too. Recently, you could drive home a new Mercedes-Benz C230 Sport Sedan (sticker price, $32,180) for $349 a month. The terms: a 36-month lease, with $3,529 due at signing. Your payments on a 6%, five-year loan, assuming you paid $31,200 with $2,400 down, would be $556.

Ask the dealer to compare leasing offers on the car from the manufacturer's financing arm as well as a few banks. That may produce a lower "money factor" (basically the interest rate) or higher residual, either of which translates into lower payments.

Next, target the capitalized cost -- leasing lingo for the price of the car written into the lease. Gross cap cost includes the price of the vehicle, fees, extended service plans, gap-insurance premiums and any other add-ons. Adjusted cap cost is the gross cap cost minus reductions for trade-in, down payment and rebates. That adjusted cost is the amount you actually finance. Don't pay sticker unless you have to. Both Kelley Blue Book and Edmunds.com list actual transaction prices to give you an idea of what others are paying.

If you expect to drive more than the number of miles included in the standard contract, try to negotiate a higher limit. Or you may be able to buy extra miles up front for an extra 10 or 15 cents per mile, versus the usual 15- to 30-cent-per-mile penalty charged at the end of the lease.

You usually have the option of buying the car at the end of the lease instead of turning it in. The purchase amount, typically the residual value, is written into the lease. Buying may not be a good idea, though, if the residual was set artificially high.

Not up for haggling? Kiplinger's has teamed with CarBargains, a buying service from the nonprofit Consumers' Checkbook organization. Its LeaseWise service will negotiate with five local dealers for you. The cost is $335. Visit LeaseWise or call 800-475-7283.