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.
Auto leasing, rather than buying a car is an attractive option, especially for those who plan to change their cars at fixed intervals of three years or so and for professionals who are able to take advantage of the tax and financial benefits. Auto leasing is a complex issue with many variations on costs and terms. If you have decided that leasing a car is the way for you to go, here are a few tips on what to look out for so as to ensure that you get the best possible deal.
Decide on the auto leasing option that is best for you. There are two basic types - open ended and closed ended.
?In a closed ended lease you return the car to the dealer at the end of the lease period, pay any costs due, including those for extra mileage or excess wear and tear or damages, and walk away. Since the residual value of the car is fixed in advance, the dealer takes the risk of not being able to get what he expects for the car.
?Open ended auto leasing is less common. In this case the residual value of the car at the end of the lease period is estimated but not fixed. Here also you pay the same costs due at the end of the lease as with a closed ended lease, but if the dealer feels that current market conditions have reduced the residual value of the car, you will be required to pay the difference between the estimated value and the current market value. While the lease payments for this kind of lease are generally lower than with a closed ended lease, because the dealer is covered from the residual value risk, disputes on what the residual value is or should be often leads to disputes and other hassles.
?A variation on both these leases is Balloon Auto Leasing. In this case you start out with low payments and the amount increases at regular intervals at fixed times. This is designed to allow people to lease a better car than they can currently afford on the expectation of higher income in the future and the ability to pay higher lease amounts. This is a dangerous option because people tend to budget, based on the initial payments and when the amount increases, they are hit hard.
You should always shop around because terms and conditions vary, depending on the dealer and the leasing company. The auto leasing agreement is between you and the leasing company, not the dealer, who is only representing the leasing company. Read the lease agreement in detail, especially the seemingly unimportant clauses at the end of the agreement. Ask for clarifications on anything you are doubtful about and if the responses you receive do not seem clear and logical, ask for them in writing.
Both John Ugoshowa & David Balmer are contributors for EditorialToday. The above articles have been edited for relevancy and timeliness. All write-ups, reviews, tips and guides published by EditorialToday.com and its partners or affiliates are for informational purposes only. They should not be used for any legal or any other type of advice. We do not endorse any author, contributor, writer or article posted by our team.
John Ugoshowa has sinced written about articles on various topics from Affiliate Programs, About Branding and Fat Loss. John Ugoshowa. For more information about Auto Leasing see the Auto Leasing section of The Free Ad Forum at: