Top 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 in to 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.
One-time payments become monthly payments
One way dealers make more money is to spread out one-time payments, like the security deposit, over the life of the loan (it’s called “amortizing”). Rather than having you pay the $450 security deposit upfront, the dealer will do you a “favor” and spread the cost of the deposit over the life of the loan. When it’s amortized, it’s subject to interest, and of course, you end up paying more. Try to avoid this option whenever possible. False low interest rate Dealing with any sort of contract can be confusing. Before you sign your contract for your new car, double-check that the interest rate you are promised is the one you are getting. Dealers can lead you to believe you’re getting a good interest rate, but when you read the fine print you’re actually being charged a high rate. Early term policy If you want to get out of your lease early, you will be penalized and pay thousands of dollars. There is also normally a small fee on top of this penalty. If you ask what the cost is of getting out of the lease, the salesperson may tell you that this is the fee. They’re not technically lying — they’re just not telling the whole truth. This is just the small administrative fee on top of the usual penalty. Don’t be fooled! Before you take out a lease, make sure you really want to keep the car for the number of years set in the lease. Getting out of a lease is costly. No Fee Dealers like to say there is no security deposit or fee in the lease. But be sure to read the lease carefully. They can often replace one fee with another fee with a different name — they are actually the same. The Term of the Lease Many people focus on negotiating the monthly payment. That is just half the story. You also need to be aware of the term of the lease: the number of months. Your total price is the combination of the two. If you pay $350 a month, you might think you’re getting a better deal than your friend whose monthly payment is $400. But if his lease is three years and yours is four, you’re paying $2,400 more! Do the math: $350 x 48 months is $16,800. $400 x 36 months is only $14,400. Lease Guaranty Some dealers will tell you that if you choose to default on your lease that it’s not problem. This is not always true. As you probably know, you cannot back out of a lease because it is a contract. If you do break the contract, the penalties can cost you thousands of dollars and damage your credit rating. What happens is that the dealer pays off you bank loan, so you now owe the dealer — which is worse. Extended Warranty It’s so easy for a dealer to convince the unwary that they have to slip in an extended warranty. Some of these warranties are even for a longer period than the lease! As with any large purchase, it’s necessary to do your homework. If you don’t you can be scammed easily and end up paying more than you should for a car.