Couple shopping for car © Medio Images, Getty Images

Car leasing is back -- big time.

One in four new vehicles driven off car lots so far this year was leased, according to, putting the auto industry on track to break last year's record 22%.

That's a stunning rebound from five years ago, when the credit crunch led Chrysler to announce it would stop leasing cars, and other manufacturers dramatically cut back.

The trend is being fueled by aggressive deals that have driven down the cost of leasing. The gap between the average monthly lease payment of $418 and the average auto loan payment of $464 is the widest since started tracking these numbers in 2003.

Manufacturers are targeting younger drivers, who "seem to have a pay-as-you-go philosophy," said Philip Reed, senior consumer advice editor. Many young drivers view cars much the same way they do cellphones, Reed said: as pieces of technology to be replaced quickly with more advanced versions.

"If you lease, you get the most recent technology," Reed noted, citing rapid improvements in safety features, fuel economy and navigation systems.

So has leasing become a smart financial option? Sometimes, the answer is yes.

This was news to me, because when it comes to cars, I long have held that the cheapest option was to pay cash for a slightly used one and drive it for at least 10 years. That's still true, but there other considerations that sometimes favor leasing. Some examples:

When you want an electric car. Consumer Reports has never been a big fan of leasing, pointing out that "buy and hold" is a better financial proposition for most drivers. But it makes an exception for plug-ins.

"With electric cars, it's pretty cut and dried," said Consumer Reports automotive expert Eric Evarts. "Why lock yourself into the first generation of technology?"

Today's typical electric car has a range of about 75 miles and takes four to five hours to charge fully, Evarts said. But technology is improving constantly, with better batteries that have more range and charge faster.

"We don't know what's coming next," Evarts said. "The only thing we do know is they're going to be better."

The tax credits for electric cars also favor leasing, Evarts said. The $7,500 federal credit -- plus any credits your state might offer -- dramatically reduces the cost of the car, reducing lease payments, as well as resale value.

If you buy today's electric car and try to sell it a few years from now, you'll be offering outdated technology to someone who can get a better car, plus a tax credit, by buying new, Evarts said.

Manufacturers are promoting $199-a-month lease deals on many electric models, with down payments of $999 to $2,000. If you need more range, you can get a Chevrolet Volt, an electric car with a gas engine for backup, for $269 a month with $2,399 down.

When you can afford the luxury of a new car every few years. This is a very small percentage of drivers -- much smaller than the number who are leasing now.

Image: Liz Weston

Liz Weston

The problem with buying new cars is that they're expensive (duh), and too many people wildly overspend when they opt for new vehicles. (For more, read "Your car is wrecking your retirement" and "The real reason you're broke.") The commonly given advice that you should limit car payments to 20% of your take-home pay works only if you have cheap housing and no debt. Otherwise, you're likely to spend too much on your wheels and shortchange other important areas of your life.

If you want a new car you should:

  • Be on track with retirement and college savings
  • Have a fat emergency fund, enough to cover six months' worth of expenses
  • Be adequately insured (health, life, property, disability)
  • Have no consumer debt, such as credit-card bills

If that describes you, and you want to indulge in new wheels every few years, then leasing likely would be less expensive than buying.

You're still spending a lot for your transportation, though, and you would save tons of money over your lifetime by committing to a car for longer periods. In my book "Deal With Your Debt," I figured that someone who kept his cars for a decade apiece would save $250,000 compared with someone who bought a new car every five years. Those who change cars more often are costing themselves even more.

When the lease is a one-off. The problem with paying cash for a car is that sometimes you don't have the cash when you need the car.

Let's say you're fresh out of college, your savings account is on fumes and your hoopty just died. You could lease a 2013 Honda Fit for $210 a month with nothing down for 36 months and start saving up for your next car.

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That last part is important, because otherwise you could wind up a serial leaser with a never-ending car payment. And that's not a good deal for most of us.

Liz Weston is the Web's most-read personal-finance writer. She is the author of several books, most recently "The 10 Commandments of Money: Survive and Thrive in the New Economy" (find it on Bing). Weston's award-winning columns appear every Monday and Thursday, exclusively on MSN Money. Join the conversation and send in your financial questions on Liz Weston's Facebook fan page.

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