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Thursday, January 9, 2020

Leasing Cars

     Leasing a car, like buying one, is a game of strategy you play with a dealer and they usually have the upper hand. You want the lowest cost and monthly payment, and the dealer wants the most money and most profitable deal he can make, at your expense of course. Dealers make their money on leases the same way they do on a purchase which means the higher the selling price, the more money they make. 
     Most people know they can negotiate a lower price when they purchase a car, but most don’t know they can do the same with a lease.      
     Because the attraction of leasing is lower monthly payments, customers tend to focus only that, but the dealer can manipulate the price to get the customer the monthly payment he wants. The customer may walk away satisfied, but not knowing he could have gotten a much better deal by haggling over the price. 
    Dealers like to get customers focused on monthly payments and they have tricks up to manipulate the deal to get a better payment...for themselves. They can switch models (or options) without telling you to one that is less expensive so that it appears you are paying less, but in fact may be paying full price. Or, they raise the down payment and you don’t find out about it until you’re ready to sign the papers...they know that by that point people are less likely to object or back out. They can also lower the annual mileage limit or increase the length of the lease which gets you a lower payment, but with conditions that you were not informed about. 
     Dealers don’t lease cars themselves! Instead, they arrange leases on behalf of their manufacturer’s or distributor’s finance company. Once the lease has been approved, the dealer sells the car and assigns the lease to the finance company. The dealer gets paid and the finance company becomes the owner of the vehicle. Afterwards, the dealer is out of the picture and the lease arrangement is between the finance company and the customer. 
     Often the finance company is the manufacturer’s own company. For example, Ford Credit. What this means is that the dealer can only negotiate one factor in a lease and that is price. Stuff like the finance rate, residual value of the car, acquisition fee, disposition fee and other terms are beyond a dealer’s control. Therefore, as a customer all you can haggle over are costs controlled by the dealer, not lease factors. 
     Leasing is not renting! The difference is that payments are lower because the car is returned (or purchased) at lease end for the remainder of its value that was not paid during the lease. If for any reason you decide you don’t want the car before the lease is up, you are likely to owe thousands of dollars to end the lease early. Remember, at lease end, if you want to purchase the car it is going to cost you a much bigger car payment for another 3-4 years! 
     This is because normally when you buy a car, after three years you have paid roughly two-thirds of the purchase price, but in a lease that figure is only about one third. So, for the leasing company to get their money, they have to charge you for the remaining two-thirds owed on the car. That means if you have a three year lease and want to purchase it at lease end, your payment goes up a couple hundred dollars for another 3-4 years.  Also, the car is out of warranty.
     The obvious way of reducing monthly payment is to make a large down payment which is much more significant in a lease than in a loan. When leasing you are only paying the difference between vehicle price and the value of the car at the end of the lease. If you have a trade-in and use it as a down payment it’s the same principle. A down payment has a much greater effect on lowering lease payments than on loan payments. 
     Many times sales people will not mention something called GAP coverage. With it you are covered for the entire lease payoff should your vehicle be stolen or totaled in an accident during your lease. Without it, you could owe several thousand dollars if your insurance doesn’t cover the entire debt. 
     Another thing is wear coverage. Before turning the car in at the end of the lease it will be inspected and you will be responsible for any damage beyond normal wear and tear. Lease agreements normally describe wear and tear...things like how long scratches can be before you have to pay for repairs. You’ll also be responsible for things like bad tires, cracked windshields, etc.
     Some companies, like Ford for instance, offer a “wear care” plan for a small monthly fee added to the lease payment. It’s probably a good idea so you don’t get dinged for a bundle if the car is damaged when you turn it in. Ford, for example, covers repairs up to $5,000. I believe. 
     Remember, dealers are looking out for themselves. And, salesmen are usually nice, friendly people...that’s part of being successful, but they are NOT your friend. They pay their bills at your expense so they are looking out for themselves and their family. 
     You have to read the contract and not rely on the dealer to explain it! Know what you are paying for, negotiate items that are negotiable, refuse added items you don’t want and don’t need and ask questions! Don’t let them rush you. Also, remember, at the end of the day no matter what you do, you are getting skinned because the car is worth nowhere near what you’re paying. But, what are you going to do? You need a car. 
     All that said, there are advantages to leasing. Consumer Reports discusses them in THIS ARTICLE.

The Biggest Car Leasing Scams and Tricks

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