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Car Leasing Scams
Make sure you read the fine print before you sign that car lease because what you find there could surprise you
Car dealers often resort to some common tricks to entice you to lease when it may not be your best interest. This is why it
is important to understand how leasing works and to be able to make your own decisions, without a dealer's "help." Here is
a list of the top scams used by car dealers. Any one of these could cost you a lot of money. Imagine how bad it could be if
a dishonest dealer combined more than one of these leasing scams!
1. "We will take your old car in trade, pay off your old loan balance ? no matter how much you owe ? and get you
into a better car for lower payments."
Hmmm. The dealer will pay off your old loan, as promised. However, what will actually happen, assuming you owe more on your old car
than it's worth, is that the dealer will give you credit for what the car is worth (hopefully) and add the remaining loan balance
to the price of your new car. Because your new payments are based on leasing, not buying (which he may or may not tell you), your
payments will likely still be lower than you expected, although the overall deal is terrible.
2. "We will make the remaining payments on your old lease if you will lease a new car from us today."
This technique can be a big problem. What most consumers assume is that the dealer is somehow taking over responsibility for the
lease. What is actually happening is that the dealer is simply making your remaining payments and returning the car to the lease
company for you. If the car has damages or excessive mileage, the lease company will send you the bill, not the dealer. If the
dealer fails to make those final payments, the lease company will come to you, not the dealer. If the dealer fails to return the
car to the lease company, you will be held responsible, not the dealer. Furthermore, the dealer will very likely add all, or some,
of those remaining payments back into the price of your new car.
3. "You are getting a nice 3.4% rate on this lease, which is better than our loan rates.
A 3.4% rate would be very good, except that's not the interest rate you are actually getting. The rate you are being quoted is most
likely the lease "money factor" which is more accurately written as .0034. Money factor can be converted to annual interest rate by
multiplying by 2400. Therefore, a .0034 money factor is equivalent to an 8.16% loan interest rate.
4. "We'll take your old leased car in trade and give you a great deal on a new lease."
Trading in a leased car is usually not a good idea. The reason is, that most people will not have any "equity" in their old leased car
to help them buy or lease a new car. Regardless of what the dealer promises, there are too many potential problems. In the worst case
scenario, the dealer takes your old leased car, simply returns it to the lease company, and you get a huge bill from the lease company
for early termination or buyout. Or, if they actually want the car for their used car lot, they can buy the car from the lease company
and add the buyout cost, minus trade-in credit, to the price of your new car. This could be a large amount of money. If you are at the
end of your lease, and have confirmed that you have no trade equity, simply returning your car to the lease company is your best move.
5. "Leasing is more flexible than buying because you can get out early or swap cars anytime you want."
Not true. Dealers know that some people like to swap cars often and want the flexibility to get out of a particular car when they choose.
Leasing is proposed as the way to be able to do that. What the dealer doesn't tell you is that leasing is designed in a way that makes it
both difficult and expensive to terminate before the normal end date. Furthermore, you can't swap cars in a lease.
6. "Leasing will always be a better deal for you than buying because your payments are significantly lower for the same car."
It is true that lease payments are lower than loan payments for the same car, which allows dealers to suggest that leasing is a better deal,
especially when they are working with a "payments" customer. In fact, dealers frequently stretch out the lease term to five years or more to
make the payments even lower. First, leasing may not be right for you, especially if you drive more than 15,000 miles per year ? but the
dealer may not explain that part ? and a five year lease on a car that only has a three year warranty exposes you to expensive repair costs
for a car that doesn't belong to you.
7. "Leasing doesn't show up as a debt liability on your credit report because it's like renting.
Not true. Leasing is not like renting. Leasing shows up on your credit report as a debt obligation just like a loan. If you are late making
payments, your credit is damaged, just like with a loan. If you are concerned about your debt load, leasing doesn't help.
8. "The best way to acquire a new car is to lease first and then purchase the car at lease-end.
This is false. Although leasing offers lower payments and may allow you to drive more car initially than you might otherwise be able to afford,
buying that car at lease-end adds additional cost and makes the total cost of the lease-then-buy scenario greater than if you had simply purchased
the car at the beginning. Of course, if the convenience of having low initial payments is worth the extra cost to you, then that's your decision.
Just don't let a dealer convince you that the extra cost doesn't exist.
9. "Rebates and price discounts don't apply to leasing."
Some dealers take advantage of the fact that most of their customers don't understand leasing. Some will tell you that leasing is always based on
"sticker price." Not true. Leasing is always based on negotiated, discounted, or rebated price.
10. "We require all our leased cars to have extended warranties, rust proofing, paint protection, window etching, and maintenance contracts."
Again, this is false and deceptive. There is nothing about leasing that makes these high-profit dealer add-on items necessary. Lease companies do
not require these items, as the dealer may suggest.
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