The Real Deal About Auto Leasing Agreements
Car-leasing has been lauded as a more attractive option 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 car leasing scams and how to avoid them .
Artificially low interest rates:
Some car dealers quote a low 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 at 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 something smells fishy about the lease agreement, don’t sign it!
Terminate your lease early for a low penalty
This is a long standing car dealer scam when it comes to leasing. You ask your dealer how much you will pay if you want to terminate your lease and he tells you: “You can pay only a small early termination fee of $250″…. he/she is misleading you.
What he is quoting is only the small administrative penalty of early termination. In fact, there is a much stiffer penalty called an early termination fee and this runs into thousands of dollars that comes on top of the other administrative early termination fee.
Do not confuse the early termination administrative penalty with the termination fee. Read the small print carefully and know precisely 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 one of the oldest car tips in the book: avoid extended warranties provided by the dealer. The dealer slips an extended-warranty into the deal whilst it’s already factored into the monthly payments, so basically you’re paying for two warranties… or he might even try to sell you on a 36-month warranty when you’re only leasing the car for a 24-month term.
You warranty is already factored into the lease , so don’t get sold on extended warranties by a slick salesman .
Advertising 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. Once again, always read the fine print when dealing with lease agreements or buying a car in general.