Auto Leasing SecretsIs It
"Leasing" or "Fleecing"? Since most people don't understand how leasing works, dishonest dealers have been able to take advantage of consumers by using deceptive lease-vs.-buy comparisons; quoting lower prices or interest rates, then using higher ones in the lease; and quoting higher trade-in allowances than people actually receive. Since full disclosure is not yet required by law, few people have known the crucial details of their lease transactions -- and even fewer realize that they have been cheated. In 1995 ABC's PrimeTime Live did an undercover investigation that found deceptive leasing practices being used at five out of the ten dealers they visited. That same year, a statewide investigation in Florida resulted in 55 Toyota dealers and their distributor setting up a $4.5 million restitution fund to settle complaints of overcharging on leases. (Other leasing investigations are now under way in 22 states.) On May 14, 2000 KCBS-TV announced the results of its three-month undercover investigation of 14 new-car dealerships in Southern California. Some of the biggest dealers in America were caught red-handed by hidden cameras -- lying, cheating and overcharging customers on new-car leases and purchases. Money Saving Tips-- If you're thinking about negotiating your
own lease with a dealer, be sure to use Expert Lease
Pro software. The dealer will be using his software to maximize
his profits (at your expense), but you can protect yourself against
overcharges by analyzing the deal before you sign any contracts. Or you
can eliminate the middleman (the dealer) by getting lease quotes directly
from
Auto Leasing Direct. They will provide no-obligation
competitive quotes, with full disclosure of all terms. And if you are
interested in saving thousands of dollars by getting out of (or into) an
existing auto lease, use SwapaLease
-- the national marketplace for auto lease assumptions. This is a great
idea for consumers who want to get out of a lease early without paying
thousands of dollars for early-termination fees. And it's also a great
idea for shoppers who are interested in leasing, but don't want to waste
thousands of dollars on up-front costs just to "rent" a new car
for a couple of years. See their web site for details. The Secret Price
Increase (The "Flip") Now that cap cost disclosure is required by law (nationwide as of 1/98, two years earlier in a few states), secret price increases are more difficult to pull off. However, some salespeople have been so bold (and so greedy) that they have attempted it, anyway -- and succeeded. Most people don't understand how leasing works, so dishonest salespeople can still get away with price hikes by using one of the following tricks. First, using a cap cost in a lease that's higher than the negotiated (or quoted) price is not even noticed by some people because they don't know what cap cost represents. (It's the "selling price" of a vehicle that's used to calculate lease payments and it's supposed to be the same as the price that was negotiated, quoted, or advertised by the dealer.) Second, if a higher cap cost is noticed, the salesperson might say that that figure has no effect on their monthly payment; they're not buying the vehicle, the leasing company is; and the cap cost is set by the leasing company so it's not negotiable. (Those are all lies.) Third, a higher cap cost is sometimes explained away by saying that it includes finance charges (another lie). Since most people are used to paying thousands of dollars in interest on car loans, this lie sounds believable. Deceptive Lease vs. Buy
Comparisons Another trick that's used in deceptive comparisons is the quoting of inflated loan payments -- again, to make purchases look more expensive than leases. Inflated lease payments may also be quoted, with the "extra" money going towards a secret price or APR increase. Since few consumers understand how lease payments are calculated, many have agreed to leases with monthly payments that were inflated by $75 to $100 or more. (And that's why you should always figure out your own loan and lease payments.) The "Cap Cost"
Mistake The "Down
Payment" Mistake More Leasing Resources Lower Payments, Higher
Finance Charges For example, on $20,000 lease and loan balances, at 8% for 3 years (50% residual on the lease), total finance charges on the lease would be $3,608. On the loan, total finance charges would only be $2,572. So you would pay $1,036 more in finance charges on the 3-year lease than you would on the 3-year loan. In fact, the finance charges on this 3-year lease are just a little less than the total finance charges on a 5-year loan (same balance and APR). Worse yet, since lease residuals are often inflated by lenders, and lease charges are based partly on the residual, many leases will have higher finance charges than our example because it had a conservative residual. The bottom line: Paying off less principal in a lease lowers the monthly payment, but it also causes higher finance charges. This is why credit card companies encourage people to make only minimum payments -- the lenders get more finance charges that way. And that's one of the dirty little secrets of leasing: It's the automotive version of minimum payments on a credit card. Warning to Car Buyers Too many people make the mistake of thinking that all they need is the magic "dealer invoice" number to get the best deal. Thinking that "dealer invoice" is the same as "dealer cost" is mistake #1, which is usually followed by mistake #2: thinking that they can always get accurate dealer cost information on the Internet, for free. Mistake #3 is not knowing the actual prices that "smart shoppers" are paying for the same vehicle. Mistake #4: thinking that a dealer who belongs to an Internet buying program is going to give them the lowest price in town. Mistake #5: not researching loan and lease rates before visiting the dealer. Mistake #6: believing the dealer when he says, "The best rate I can give you on a loan (or lease) is X%." Mistake #7: not knowing how to calculate their own loan/lease payments. Mistake #8: buying a service contract from the dealer at the quoted price. Mistake #9...Are you beginning to get the picture? There's a lot more to getting a great deal than most people realize, and you're not going to find all the information you'll need in a Web site. Here's a true story of mistakes made by one Web-surfing car buyer: "Fred" works in the computer industry and is an experienced Web surfer. When he mentioned to a friend that he was in the market for a new car, his friend told him about a car buying book he had read and how much money he had saved by following its advice -- which included paying for accurate "dealer cost" information. But Fred thought that was silly because he knew how to find everything on the Internet, for free. (Or so he thought.) When Fred was ready to buy, he used a
popular Web site to get his free "dealer cost" numbers. Then he
went to the dealer to make an offer. After a little haggling, the dealer
agreed to sell the car for $800 over invoice, stating that "normally,
we like to make more than $800 on a car, but we'll accept your
offer." Since Fred thought the dealer was only making $800, he
was convinced that he was getting a great deal. What he didn't know was
that the dealer's real cost was a lot lower than invoice due to
secret dealer incentives that were worth about $1,300. (So the dealer made
$2,100 on Fred's car, not $800.) And he also didn't know that other people
(the smart shoppers) were buying the same vehicle for hundreds below
invoice. The bottom line: Fred overpaid by at least $1,000 because
he tried to save a few bucks by using free "dealer cost"
information. Book Exposes Ford's
Deceptive Leasing Practices Find Out If You Were
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