Monday, December 10, 2007

Leasing a Car is a Dirty Dirty Business

So I want people to be aware of every dirty trick that you will likely have played on you when leasing a car. I am recounting my personal recent experience when buying my new Hummer at Casa Automotive Group in Los Angeles…….

  1. Know the terminology of leasing, specifically the terms gross cap cost, net cap cost, cap reduction, residual, and money factor.

I was told that the car was financed at zero % APR – a fact I was told later upon complaining to the Owner of the dealership was factually correct as the lease has a money factor applied and APR does not apply to a lease!!!

  1. Ask to see the figures on paper up front

I kept asking for figures and the Salesman and his manager kept providing me with them verbally however as they didn’t write them down I am told I have no recourse

  1. Before you begin to negotiate, insist on disclosure of the money factor and/or lease interest rate, residual value, fees, rebates and incentives.

They rolled in a $2000 factory rebate – however to help me out the “Threw in” optional extras such as “back up cameras and side steps at no extra cost” which were ultimately added to the lease taking up the discount of the factory rebates!!! I may be mistaken but I think I am paying $30 a month for these two “not extra cost to me options” Make sure you get the Salesman/ Dealership to write everything out for you in full

  1. Make sure your cash down payment and trade equity are properly applied as a cap reduction payment (reduces the cap cost).

So I brought in a trade – I spoke to the salesman and let him know I was aware that I had negative equity in the car of $500-1000 – after working the figure he concurred that I did was correct and I did have a little negative equity in the car and he supported my knowledge of my cars value…. On the final paperwork I had just over $6400 of negative equity that they rolled into my monthly payments.

  1. Account for and understand all adjustments to the gross cap cost.

In general, gross cap cost - cap reduction + capitalized fees + capitalized taxes = net cap cost. Net cap cost is used to calculate the monthly payment.

  1. Account for every penny of the cash required at signing.

Ask the salesman to break-down this figure in writing. Typical components are first payment, security deposit, sales tax, sales tax on down payment, luxury tax, DMV fees, and acquisition fee.

  1. Always, always, always calculate the payment yourself.

It is not hard and can be done easily with a hand calculator. If the payment on the contract does not agree with your calculations, do not sign anything.

  1. Avoid high pressure sales tactics

My wife and I were at the dealership nearly 4 hours which was physically draining as well as disarming as we were subject to continuous reassurances etc etc. The dealership subsequently closed and the dealership was doing us a special favor in staying open to complete the transaction. Then the dealership closed increasing the pressure on us as everyone was now hanging around waiting for us!

  1. Has the Car Left the Forecourt

We went out on the test drive of the vehicle and the dealership didn’t return the car to the lot, the parked it out front for us to transfer our items directly from our trade into our car – for our convenience and as the dealership was closing they didn’t want it locked in the lot… They later cited that the car had left the dealership and was ours and it would be illegal for them to accept it back as it was now a used vehicle!!!

  1. Car Color

We asked for a black car, when we came to sign the papers the VIN number matched Grey car – make sure you check the VIN they are writing down on the paperwork from the actual car and model you want!

  1. Divide and Conquer

They escorted my wife into the dealership to start signing paperwork whilst I moved items from our trade to the new car… no one mentioned where she had gone and I presumed she had sensibly gone into the warmth of the dealership out of the cold wind.

  1. Alternate Dealerships

My wife had actually been taken to another dealership that was part of the group where the “finance director” was. Thus when I arrived the finance manager, the salesman and the branch manager had already run through the paperwork with her!

  1. Read before signing the dealership may not allow you to change your mind once you have signed even if you have not left the room.

Make sure you read and check all documents prior to your partner signing them, unfortunately when I arrived they were signed and the dealership refused to allow us to back out of the deal as she had signed them as you guessed it the car was no longer in the dealership lot which was locked for the night as the dealership had closed.

  1. Trust your instincts.

If something doesn't sound or feel right about the deal then don't do it. We wish we had just walked home and left their car there, giving us a stronger case to take to our lawyers, we were afraid the car may be vandalized or stolen which we believed could have lead to greater problems, we should have in fact asked the dealership to “store” the car for us over night

  1. Keep and eye on “YOUR” car keys

Don’t put the keys to your car down at any time and always keep at least one, when we went to take our car and leave theirs our keys were nowhere to be found. The dealership manager had actually taken it home himself to his house over 40 miles away!!! He mentioned that he gave the car – a convertible sports car – a good thrashing on dirt roads etc and the headlights no longer worked the following day.

  1. Strong Arming

Upon speaking with the dealership the following morning, after talking to lawyers and the better business bureau, I was informed by the dealership that I could not threaten them with a lawsuit as their lawyers were far smarter than mine and as we would never be able to win a cooling off period/ buyers remorse case.

  1. Leasing doesn't show up as a debt liability on your credit report because it's like renting.

The dealer told us that by leasing we would be reducing our debt to equity ratio, improving our credit score. However leasing shows up on your credit report as a debt obligation just like a loan. If you are late making payments, your credit is damaged, just like with a loan.

  1. The best way to acquire a new car is to lease first and then purchase the car at lease-end.

This is false. Although leasing offers lower payments and may allow you to drive more car initially than you might otherwise be able to afford, buying that car at lease-end adds additional cost and makes the total cost of the lease-then-buy scenario greater than if you had simply purchased the car at the beginning. Of course, if the convenience of having low initial payments is worth the extra cost to you, then that's your decision. Just don't let a dealer convince you that the extra cost doesn't exist.

  1. Early Termination of the Car Lease

Whilst the dealer and finance manager assured us there was no early repayment penalty should we choose to make a larger than usual/ lump sum payment against the lease, this proved to be untrue. There are fees involved in the early termination of a lease, fees for which you will be responsible to pay. Early termination can be involuntary as well. If the vehicle is stolen and not recovered, or totaled in an accident, the lease is forced to end. Very often your insurance reimbursement will not cover the entire balance due on the lease. Therefore you pay the rest. However, many leasing companies offer gap insurance, which provides you financial protection in such an event. We were told that we had GAP insurance included for free yet can find no mention of it anywhere in any of our documentation.

Also, when paying a car lease, you are paying for the depreciation plus interest. The depreciation is calculated as the difference between the cap cost and the residual value. While the depreciation is paid off evenly over the lease term, the depreciation of a car is not linear. The difference in the actual depreciation and the paid depreciation is known as the gap amount, and will also be paid in a prematurely terminated lease.

Additionally, some leasing companies will require you to pay off the remainder of the car lease contract before releasing you from the lease. Others will require a flat rate termination fee. Make sure you read all the fine print before signing your lease contract.

  1. Accidents may trigger early termination:

Your lease is "terminated," and you're obligated to pay off the lease. Insurance covers damages, but not lease payoff – I was assured by the dealership that my lease includes GAP cover that will make up the difference between insurance payoff and the loan amount, however with the dealership having rolled up so much negative equity into the car, I am highly suspicious that this will be the case!

  1. False Gestures of Good Will

The Dealership has very generously volunteered to give us our car back on a loan agreement for the next 2 weeks for us to sell privately to reduce the negative equity we had in our car. We do not however know what consequences this will have on our lease nor were they willing to explain them other than that they would be willing to write a new lease if we sold the car. They also meanwhile also informed us that the payoff amount may go up as the payoff date would expire during the 14 days they gave us as it was only good for 11 days and they take 10 to make payment!

Copyright Jonathan Rose 2007 - Creative Commons License

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Rakesh Jha said...

Nice page :)

Please keep it up....!

From Application Only Equipment financing

MySpace Design said...

Great tips! Thank you for sharing these very helpful information.