by David Tarlo
9/8/2006 Are you about to enter a car dealer’s showroom to lease a car? Are you sure you want to go there to lease a car? Do you know that leasing a car is fraught with danger and villainy? Oh, and SNAKES! Yes, you will have to survive a maze of cryptic terms and calculations, slight of hand, and disappearing and reappearing numbers… and encounters with car salespersons, characters whose mention belies distrust… and… SNAKES! Yes, they’re smiling now, but… You are about to enter a dangerous zone, a place where you might loose your shirt…or your bank account… and be bitten… a perilous space known to be inhabited by the “Snakes of the Car Lease”!
Well, it may not be quite so dramatic, but how do you avoid the pitfall to leasing a car without getting bitten? Did you know you CAN avoid loosing your shirt when leasing a car, and you can keep the snakes from biting? Here’s how!
Tip 1 To leasing a car -- Be prepared!
This tip is comprehensive and includes a number of actions on your part.
First: Decide if leasing is right for you. Don’t make a snap decision, especially not one based on wants and desires. Be reasonable, consider a budget and calculate it several years into the future. Leasing requires some different responsibilities and includes different conditions than owning. In particular the number of miles you drive are finite. A leased vehicle has slightly more stringent maintenance and insurance requirements, and the car is expected to have minimal wear and tear at the end of the lease. Consider these variables. In addition to that, if you decide to cancel a lease for some reason, you will face a financial penalty. All these factors will affect some aspect of the contract and the finances. Think it over carefully!
Second: Once you are sure that leasing is for you, begin researching the car you want and make your choice on specifics. Be firm. Some dealers will try to guide you to another car. Be careful. If you picked a car after researching and determining this is the car for you, stick with your decision. Test-drive the car, just like you are shopping to buy the car. If you choose a specific car, inspect it thoroughly.
Third: Being prepared includes researching the local availability of the car. That means finding out how many of that car a dealer has on the lot. Visit several dealers and check their on hand stock of cars. The more cars there are, the more room to negotiate, the fewer cars there are, the less room to negotiate.
Fourth: When you visit showrooms, DO NOT show how much you LOVE the car. Please, do not swoon over the car and never say: “I’VE JUST GOT TO HAVE IT!” It’ll make negotiation more difficult for you!
Fifth: Check out several dealers and find out as much as you can about the dealers of your choice and specifically which dealer will go lower than the lowest quote some where else.
Tip 2 To leasing a car – Check out different sales-persons
While you check out different dealers, you can check out the different sales-persons. You want to work with a person who will not evade your questions, or try to confuse you or be condescending towards you. Ideally, you will be treated respectfully, honestly, and in a straight-forward manner. A good salesperson wants to get your business not just because there’s profit involved, but also because a satisfied customer returns and tells his friends who to ask for. So look for someone that you feel comfortable dealing with and have some measure of confidence in. But remember, a salesperson’s job is to get the most money out of your pocket into his! This is a business transaction; you are not ever going to be like family or a friend.
Tip 3 To leasing a car -- Find the Real Value of the Car
Learn the ‘true market value’ or ‘bottom line price’ of the car. It is not the manufacturer suggested price (MSRP), it is closer to the dealer’s wholesale price. You can find out the bottom line price or true market value online at sites like “The Consumer Reports” or “Edmunds”. This will give you an edge when you negotiate.
Tip 4 To leasing a car -- Work Out the Details in Advance!
Yes, that means you! This is a way to prepare for negotiation and to avoid scams. You should become familiar with the terminology used in the lease contract so that you will understand the terms, such as capitalized cost (price for car), money factor (interest formula), residual value (value of the car at the end of the lease), rather than become confused. There aren’t too many terms, it’s not difficult, and the explanations are available in some of my previous articles in the Auto section. Decide if you want an open-ended or close-ended lease. An open-ended lease leaves you vulnerable to additional costs and fees at the end, while a close-ended lease is based on the return of the car in a certain condition only. Each has financial pros and cons.
Work out the length of time for your lease and figure out an estimate of your monthly payments in advance. Two important considerations to the length of the lease are:
1-- The length of lease should match the length of warranty on the car. You are responsible for all maintenance and repairs beyond the coverage and life of the warranty.
2-- The longer you lease, the more you will pay in interest and taxes.
All the costs, including various fees, taxes and interest can be gotten in advance with a visit to the dealership or agency. Once you know the figures you can estimate your monthly payments in advance, using payment calculators available online. Do this in advance so that you can check the lessor’s figures against your estimates. If the figures are close enough, you may have a deal. If the figures vary significantly, there is a problem! Stick to your figures and your budget. If a dealer is difficult, you may wish to go to another dealer or agency to shop for the lease that most closely reflects the estimates you made in advance.
Tip 5 To leasing a car -- Negotiate!
If you don’t negotiate, get a friend or relative to negotiate on your behalf! Why? To save you money!!!
The monthly payments for a car are determined by the capitalized cost (plus dealer fees, closing fees, taxes and interest) minus the residual value. The residual value is subtracted from the capitalized cost, and the result is the depreciation, for which you will be paying in equal payments over the length of the lease.
Most experts recommend negotiating up from the ‘true market value’ or ‘bottom line price’, not down from the MSRP to lower the capitalized cost. It would benefit you to negotiate the residual value up and the capitalized cost down. The difference amounts to lower monthly payments and lower interest and tax charged on the payments. If you don’t want to make a down payment, than the downpayment, and various contractual fees (security deposit, tax, title, registration, etc…), can be rolled into the monthly payments. This is good for the dealer, not good for you, because you will be charged interest on these fees, resulting in higher payments and cost to you over the life of the lease.
You can negotiate the down payment, security deposit, closing fees, and interest rate. Nothing is sacred. Some dealers will add charges like a vehicle acquisition fee, or lease origination fee, sometimes without including the fees in the negotiation. These are fees that increase their profit margin. Ask about them. Negotiate the early termination penalty. The early termination penalty must be determined in advance or else the dealer or agency will charge you dearly. Remember, you can use a competitor’s counter-offer as ammunition.
Do not get an extended warranty if you only lease the car for the duration of the manufacturer’s warranty. However, Gap insurance may be advisable to protect you in case of an accident or car theft. Still, that may be cheaper through your standard insurance carrier.
Keep a record of everything you and the salesperson agree on and get the salesperson to initial the figures, for comparison to the contract later on. If you have picked your salesperson well, he or she will be willing to work out the details with you, especially if you have prepared well, have a good handle on the facts, and have a working budget with figures to guide you in the negotiation process. If the figures match, or are similar enough, you probably have found your deal! But wait, read on. P.S.: Don’t expect negotiation to go quickly, likely, this will be a process of days or weeks.
Tip 6 To leasing a car -- MONTHLY PAYMENTS DO NOT MATTER!
This may come as a shock to you, but monthly payments are deceiving. Ever larger sums of money can be broken into small, comfortable, monthly payments. The sales person may throw different amounts and figures at you, he may make comparisons of monthly lease payments to monthly loan payments to sway you, but... it is all subterfuge! If the monthly payment goes down, expect the length of the contract and therefore the number of payments to go up! Be careful! You may pay less per month, but pay more in total costs, interest and taxes. Monthly payments do not matter, what matters is the capitalized cost (of the car) minus the residual value (of the car), plus any additional fees, interest and tax. If you are prepared, have a working budget and payments calculated in advance, no amount of tempting monthly payments should sway you!
Tip 7 To leasing a car – Take advantage of Promotions and Incentives
Check out any manufacturer’s promotions, or dealer incentives, as they will usually reduce the capitalized cost of the car and therefore the monthly payments. Promotions occur around tax time, yearly close-outs, and holidays. However, make sure the dealer does not lower the residual value or inflate the cost with additional options, instruments, bells and whistles, or even try to switch cars on you.
Tip 8 To leasing a car -- Compare Financing Options
There may be alternative financing options available to you, especially in large urban areas. Competing dealers may offer different packages with added incentives. Banks and Credit Unions, especially Credit Unions, now offer competitive packages for car leasing. There are also independent vehicle leasing companies in the field now. These are companies whose entire business is built on leasing cars to the public without being a traditional dealership. These companies offer competitive options and a greater variety of cars and makes. Do not forget to be prepared, regardless of where your feet carry you. Check all your options. Since the popularity of leasing has increased, the incentive for capturing your dollar has increased the competition and the opportunity for you to shop a variety of leasing options.
Tip 9 To leasing a car -- Check the Car!
Duh!! Check the car. When you are shopping, dealers or agencies take you on test drives. Look at colors, equipment and options… just like you are buying. You should not consider other cars unless you are willing to go through the preparations again. It would also be advisable not to add on options as that will increase your costs. Focus on what you have already decided on, and make an effort to check this car at several different businesses. OK! You’ve decided, you picked the car a few days or weeks ago, you negotiated your heart out and have a deal ready to sign today… but wait. Check the car again! Remember, every scratch and ding, oil spot on the carpet or bent bumper will COST YOU in the end. Make sure nothing has happened to the car since you last saw it. Check the mileage to see if the car has been driven excessively since you last looked. Only once the car passes this last inspection do you step into your salesperson’s cubicle to finalize the lease.
Tip 10 To leasing a car -- Check All the Figures!
The Consumer Leasing Act (CLA), Regulation M (1998), entitles individuals whose vehicle lease (for personal use) is over four months long and not over $25,000 dollars in value to disclosure of significant information. This information is available at many libraries, and on line, including a downloadable form. This form, or a similar form, must be presented to you and it should disclose many of the costs and variables of the lease. You should make sure that the monthly costs, total cost of the lease (including down payments, security deposits, capitalized cost, residual value, closing costs, taxes, and interest), any additional fees, the mileage restrictions (including the fee per mile for additional mileage), and contract termination penalties, and any car preparation costs are what you had agreed to. There should be no additions to the terms and charges you negotiated, and to your negotiation notes. You must see the contract to verify that it matches what you agreed to. Take your time. Look it over carefully!! You should check the maintenance requirements and the car warranty. Check everything! If you had a trade-in, make sure that has been credited to you at the agreed amount. Make sure all the rebates or incentives are credited to you. Make sure the interest rate on the contract matches your agreed amount, written clearly with a percent (4.6%) sign, or .046, not the “money factor”, which oblique calculations that results in a higher interest rate. Compare the contract amounts to the figures that you had prepared ahead of time. They should match, or be similar. If there are discrepancies, or gross errors, do not sign the lease!
A Warning: Do Not Sign Anything If It Is Not Accurate!
Don’t even think about it. Don’t ever sign anything or initial anything that will be corrected later! Remember the snakes.
Tip 10.5 To leasing a car -- Do Not Feel Obligated!
Don’t allow anyone to make you feel bad, or obligated… the moment you feel pressured or manipulated psychologically… get up and leave. The snakes are out of the bag! You may get a more favorable follow up later, but never submit yourself to psychological warfare.
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