Dealer Leasing Tricks

Too often when it comes to auto-leasing, people get so dazzled by the

myriad terms and the jargon thrown their way that they end-up paying

through the nose, relying on a dealer’s “help” than their own informed

decision.

Here is a look at some of the tricks dealers use to pad their profits and

leave the customers shelling hundreds of dollars more than the deal should

be worth.

Trick 1: Leasing always a better deal than buying

Dealers use the lure of lower-monthly payments to entice customers to sign

for long-term loans, with terms stretching for five years or more, making

the payments even lower. There are two catches with such lengthy contracts:

higher mileage, exceeding the prescribed limit, and hefty repair costs.

With

leases charging on average 10 to 20 cents a mile for any extra mile over

the agreed amount in the contract, and warranties only covering three

years, you leave yourself wide open for hefty charges for excessive

mileage and wear and tear.

Trick 2: Cheap 2-3% APR rate on your lease

The dealer is not quoting the interest rate you would be paying on your

lease; he’s rather giving you the lease money factor. Whilst similar to an

interest rate and important in determining your monthly payment, a more

accurate rate is calculated by multiplying the money factor by 24. For

example a “cheap” 3% money factor is 24 X 0.003 = 7.2%. This gives you a

better sense of what your annual interest rate on your lease contract is.

Trick 3: Stress-free early lease termination

Dealers know consumer driving needs change and they would like to have the

option of getting out of a lease commitment sometime down the road, before

their lease ends. Truth of the matter is, when you sign for a lease, you

are effectively saddled with monthly payments for the remainder of the

lease term and there is little-choice of getting out early. Lease contracts

carry hefty financial penalties for either defaulting on monthly payments

or terminating the lease earlier than the scheduled term.

To avoid being on the receiving end of such tried-and-true tricks, educate

yourself about leasing. Get down to the nitty-gritty and understand what

the leasing terms used by dealers mean. Crunch the numbers along with him

and understand how they arrived at the monthly payment figure. Don’t sign

anything until you’ve understood all the terms and your numbers much those

of the dealer. Do not let the dealer pressure you into signing; you are the

one to determine whether the agreement is right for you.

Auto Leasing Scams

Car-leasing has been lauded as a more attractive alternative to buying,

offering in the process the flexibility to drive a new car for less. The

reality, however, is that leasing is an option that is fraught with many

pitfalls for the average customer. Leasing regulation does not require as

much disclosure as buying a vehicle. This has given rise to many leasing

scams that trick the customer into believing they are into a good deal

when, in effect, all he is getting is a rough deal on the dealer’s terms.

Here we look at some of these common scams and how to avoid them

Artificially low interest rates:

Some dealers quote a lower interest rate when in reality it’s much

higher. They do this by either purposefully quoting the money factor as

the interest rate or calculating the loan without amortizing some closing

fees, like the security deposit, into the loan lease. Take the money

factor for example: this is typically expressed as a four decimal digit,

something like 0.004. Some dealers quote this as a 4% interest rate when

in fact you need to multiply it by 24 to get a rough idea of the interest

rate on your loan. In this example, the interest rate is a much higher 9.6%

than the “quoted” rate of 4%.

Make sure you crunch the numbers and understand the formula they use to

calculate their interest rate. Look out for any fees not factored into the

calculation. If you are not satisfied, do not enter into the lease

agreement.

Terminate your lease early for a low penalty

This is an all-time leasing scam. You ask your dealer how much you will pay

if you want to terminate your lease and he tells you: “You want to get out

early? Sure thing, you only pay an early termination fee of $300”. What he

is quoting is only the small administrative penalty of early termination,

there is a much stiffer penalty called early termination fee and this runs

into thousands of dollars.

Do not confuse the early termination administrative penalty with the

termination fee. Read the small print carefully and know exactly how much

you will get charged should you terminate your lease before its scheduled

end.

Pay for an extended warranty you don’t need

This is another shell game to inflate the dealer’s profit at your expense.

The dealer slides an extended-warranty into the deal whilst it’s already

factored into the monthly payments, or he tricks you into buying a 36-month

warranty on a 24-month lease.

You do not have to pay extra money for a warranty already built into your

payments or for one that goes well beyond your lease term.

They might slip an extended warranty in. Don’t be fooled, the warranty is

already factored in.

No security deposit

Any dealer who advertises a $0 security deposit is not telling you the

whole story. A security deposit is always factored in the lease under the

provision for disposition fees.

How to spot a good car lease

Leasing has been lauded as your cheapest ticket to keep up with the

industry’s hottest vehicles and trends. The jury, however, is still out

on leasing: with the industry long on hype and short on detail, it is

difficult to distinguish between a genuinely good deal and a downright

up-selling exercise.

So how do you spot a good deal?

First, you need to find out if there are any down payments on the lease. A

down payment refers to the lump sum amount that you pay upfront, either in

cash, non-cash credit or trading allowance, to reduce your monthly payment.

You should think twice before putting money down on a lease: not only are

you getting a rough deal, as you’re essentially forfeiting the general rule

of leasing: not putting any cash upfront, but the money is not recoupable

at the end of your lease. There is another big disadvantage: in the event

of your car getting damaged or stolen, you insurance and the gap cost will

not cover the loss.

Mileage Limit

Most leasing companies allow you a limit of 45,000 free miles over the

length of a 3-year lease. This may seem like a good deal at first sight,

but when you consider it only comes to 15,000 miles over a 12 month period

it’s not difficult to foresee why it might be difficult to stay within this

limit. Even people working from home have little trouble putting 15,000

miles on their cars.

If you exceed the mileage limit, the penalty for each excess mile can be as

high as 20 cents. This can add up quickly over the length of your lease: an

additional 4,000 miles a year over the length of a 3-years lease contract,

will end up costing you an extra $2,400 in excess mileage charges!

Be realistic about your mileage needs, especially if you have to regularly

commute over long-distances, before you sign the contract. Consider padding

the miles that you expect to use since it is less expensive to contract for

the extra before you sign than it is to pay the extra charges at end of

your lease.

Sales Tax

Sales tax is usually capitalized and added to the monthly payments.

However, some dealers choose not to include it in their calculations to

drive the advertised lease payments even lower. What they do instead is

state in the small print that the monthly payment excludes “sales tax”.

Make sure you carefully read the fine print for any extra, hidden costs not

included in the advertised monthly payment. Unscrupulous fees that

typically slip through the cracks include sales tax, registration and title

Luxury Cars and Resale Values

When it comes to ultra-luxury, high-end vehicle leasing, there is no doubt

that the best deals are those cars that hold their value. With this in

mind, we single out a few truths about residual values that consistently

apply to high-end leasing.

The most determining factor when it comes to resale values is public

perception of the brand, not its reliability ratings in quality surveys.

Take the Jaguar for example: it is consistently rated as a quality car, but

because of questionable reliability perception among the public, it takes a

sharp dip in value at the end of its lease-term

Higher-tech options and other cutting-edge features do not necessarily mean

the car will fare better. By the time your car is two years old, better

and cheaper systems will render the laser-guided cruise control, navigation

systems and built-in cell phone obsolete. Look for functional features,

such as automatic transmissions, power windows and wheel-drive to enhance

the vehicle’s value in the used-car market.

Used-car buyers view less favorably luxury vehicles that come with big

incentives. These are perceived as questionable in quality and

Leasing used cars explained

Leasing a used vehicle can be an attractive deal in many ways, no least

getting you into that luxury model or SUV, for lower monthly payments than

a brand new one. Be prepared, however, to do some more homework to dissect

a good deal.

As with new car-leasing, your price research should focus on the key

figures that are the initial market value and the estimated residual value

of the used car. This is harder to predict since there is no factory-set

sticker price on used cars, and the residual percentage is very much pegged

to a subjective current retail value. Use different sources to get a rough

idea of the value of the used car: your local dealerships, internet

car-evaluating tools, such as Edmunds.com and Cars.com, to name but a few.

Another way to pin down a good estimate is to compare the lease on your

given car to a lease on a new-car with the same make and model. This should

give you a better picture of the difference between leasing new and going

for used. Just like leasing a new car, used vehicle leasing is more

attractive when residual values depreciate the least. You stand a better

chance of finding a bargain in the high-end, luxury vehicles that keep

their values better as used cars.

Next, you need to check the initial mileage and the overall vehicle

condition. The maximum mileage on a used car should be no more than 12,000

miles a year. A 3-years old car with 50,000 miles on the clock is very

unlikely to make a good used-vehicle lease. Check for signs of excessive

use, like worn seat fabric, worn pedal pads and dirty engine, which might

indicate that the odometer has been rolled back. If the car is not

certified, you need to get it thoroughly inspected. Ask your dealer for a

manufacturer-sponsored certification program or have your car certified by

a qualified mechanic or inspection service.

Most used-car deals don’t come with gap coverage. This is a special type

of coverage, normally offered on a new auto-lease, to cover the consumer if

the leased vehicle is lost, stolen or damaged. Typically, auto-insurance

policies cover only what your car is worth at the time of loss, not what

you still owe on the lease. The difference could run into thousands of

dollars. For peace of mind, do not enter into any used-car lease without

gap-coverage. Arrange it separately with either the lease dealer or your

auto-insurance company.

Auto Insurance and Leasing

When leasing a car, it’s easier to stick with the same company for your

auto insurance. What you don’t know, however, is that you may end up

paying too much for your coverage and it’s better to look elsewhere for

lower rates.

When you lease, the vehicle that you will drive belongs to the leasing

company. They want to make sure that their investment is covered in the

event the vehicle gets damaged, totalled or stolen. They typically want

to get covered for the difference between what your auto-insurer pays and

your outstanding leasing obligations at the time of the accident or

damage. This is called GAP, short for Guaranteed Auto Protection, and is

usually included in the leasing contract.

If your leasing company is called BMW Financial Services, Chrysler

Financial or any other finance division of an automaker, then chances are

your GAP insurance will be offered by the same lease company.

You are under no obligation to accept GAP insurance included as part of

your lease agreement. Why pay an insurance premium if you could get the

same coverage for a lower price?

Invest some time shopping by comparing quotes from other insurance

companies, including your existing one. Ask for discounts that you already

qualify for and adjust your coverage accordingly.

Single-Payment Lease

A prepaid lease is a new type of lease which has made its foray into the

market in recent times. In this lease, consumers forego the cycle of lease

payments if they make a large payment at the beginning of the lease.

There are two amounts in a conventional lease that incur charges and

determine your monthly lease payments. First, there is a depreciation

charge which accounts for the value the car loses during the lease term.

Second is a residual amount which is the projected value of the vehicle at

the end of the lease. The sum of these two charges gives the monthly

payments on your lease.The idea behind a pre-paid lease is to eliminate the

finance charges for depreciation and only account for residual value

charges in a single, pre-paid payment at the beginning of the lease.

Single-payment leases are devised with spendthrifts in mind: no cycle of

monthly payments, a new car every two to three years and no interest in

purchasing the vehicle at the end of the lease. You should only consider

this type of lease if you are concerned about not being able to make monthly

payments and have a lot of cash upfront.