Is leasing a car or truck the right option, or are you just being lured in by the seemingly low monthly payment? Make sure you are better off leasing your car instead of buying it and educate yourself on all of the positives and negatives before going to the dealer to assure you are given the best deal on your new car.

Common Auto Leasing Scams and Tricks
Depending on your needs, car leasing can be a more attractive alternative to buying a car, offering the flexibility to drive a new car for less. Leasing regulation does not require as much disclosure as when buying a vehicle, so be very careful when signing a lease contract as many dealers try to trick the customer into believing they are getting a good deal when they are not.

Some common dealer leasing scams and how to avoid them:

Paying 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.

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 a classic car leasing scam. Your dealer claims that you can get out of your lease early by only paying a 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 into 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.  

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.  

Dealer Leasing Tricks

Here is a look at some of the tricks dealers use to make additional profit and make the customer end up paying more, don't think just because your salesman seems like a good guy that he is being honest, it is his job to sell you and make money, no matter what he tells you.

Leasing is a lower payment than buying
Dealers lure customers in with lower-monthly payments to talk you into signing a long-term lease. Terms can even be extended five years or more years to make the payments lower. There are two catches with such lengthy lease contracts: higher mileage, which ends up exceeding the alloted limit of miles, and hefty non warranty covered repair costs. With leases charging on average 10 to 20 cents a mile for any extra mile over the agreed amount in the contract and warranties covering 36 months, you will end up paying for excessive mileage and wear and tear, which can add up very quickly, plus you have to keep your car for a long period of time, getting a new car every few years is the main benefit of leasing and you are throwing that away.   

Low APR rate on your lease
The dealer is not quoting the interest rate you would be paying on your lease; he’s rather giving you the lease money factor. A more accurate rate is calculated by multiplying the money factor by 24. For example a 3% money factor is 24 X 0.003 = 7.2%. This gives you a better sense of your annual interest rate on your lease contract.

Stress-free early lease termination
Customers driving needs change and the customer usually likes to have the option of getting out of a lease commitment early. Truth of the matter is, when you sign for a lease, you are agreeing to monthly payments for the remainder of the lease term and there is little choice of getting out early. Lease contracts carry hefty financial penalties for either defaulting on monthly payments or terminating the lease earlier than the scheduled term.

Benefits of leasing

Despite aggressive low-interest financing, cash-back offers and other purchasing incentives offered by leading auto-makers to buyers, leasing numbers keep increasing steadily over the years. Leasing is not only an attractive financial proposition to most auto-consumers, but also a lifestyle and preference choice.

Having the Newest Model
Leasing is sometimes more of a personal and lifestyle choice than a financial one. Many individuals want the newest models every two to three years. Leasing a car provides the convenience of having the latest technology and safety innovation, such as an electronic stability system, DVD entertainment systems and advanced stereo equipment. If you are want a new car every few years, than leasing is your best option.

Flexibility of Purchase
Leasing also offers purchasing flexibility: it allows you to defer the purchasing decision while using the car. You don’t have to haggle with your mechanic over repair expenses, deal with hefty maintenance bills or worry about the value of your vehicle going down. If you keep the vehicle in good condition and stay within the contracted mileage allowance, you are basically getting a test drive for the length of your lease. At the end of your lease, you can purchase the vehicle or simply turn in the keys and walk away or drive away with a new car.

Cash Flow
Leasing can reduce your car payments as you only pay for the depreciation on the car - only the part you will use during your lease, not the entire vehicle. This results in lower monthly payments. This extra cash can be placed on other higher interest loans you may have such as credit cards. If you are self employed, then you can write off your leasing payment as a business expense.

Ability to Negotiate a Lease
Almost everything about leasing a car is negotiable, if the dealer does not want to negotiate, then walk out, they will almost always call you the next day with a better deal. If you know all the fees involved, you can lower your monthly payments, negotiate the purchase price of the vehicle at the end of the lease and contract additional miles on top of your mileage limit. Shop around and compare deals from different auto insurers to get the cheapest GAP insurance for your lease.

How to avoid extra costs at the end of your lease

$300 to dispose of your vehicle, $1500 for extra miles you put on the odometer and $300 to replace the light bulb and the worn tyres—lease agents constantly nickel-and-dime consumers when their lease runs out.  

Common pitfalls to avoid when turning in a vehicle at the end of a lease:

Excess mileage fees

Almost all leasing companies will charge a premium for each mile over the yearly mileage stated in your contract. This penalty can be as much as 25 cents per mile and can add up quickly. Avoid the risk of running up thousands of dollars in excess mileage penalties at the end of your lease and always check the per mile charges in your contract. Be realistic about how much mileage you will need before you sign the contract. If you think the mileage limit is unrealistic, then negotiate with the dealer to get a higher mileage contract for additional miles in advance.

Disposition fee

leasing companies charge you if you choose not to buy the vehicle at the end of your lease. These fees are additional compensation for the expenses of selling, or otherwise disposing of the vehicle. They typically include administrative charges, the dealer’s cost to prepare the car for resale and any other penalties. Make sure this fee is stated clearly in the contract and is agreeable by you before signing on the dotted line. At lease-end, you will be left with no position to negotiate as the dealer will apply your refundable security deposit towards these fees.

Excess wear and tear fees

Another potential cost at the end of the lease is any incidental damage done to the car during the lease. This is deemed any excessive damage done to the normal tear and wear of the vehicle. Notice the use of the terms “deemed”, “excessive” and “normal”. There is no standard formula to define what’s “excessive” and “normal” and it’s up to the leasing company to assess – or deem – the damage and determine what they are going to charge. This leaves you at the mercy of unscrupulous leasing agents who set stringent tear-and-wear standards. Make sure you read the description of these standards, understand them and agree to them.
If your leased vehicle is damaged prior to the end of the lease, you may find it cheaper to repair the damage yourself than pay the excessive charges of the leasing agent. In the event of a dispute over the charges at the end of your lease, get an independent third party to do a professional appraisal detailing the amount required to repair any damaged parts or the amount by which tear-and-wear reduces the value of the vehicle.  

Leasing and Your Credit Score.
Your credit score is part of the leasing decision. When you apply for a lease, your lease company will typically look at your credit score to decide whether you to approve the application.

The leasing contract stipulates that you make regular, monthly payments over your lease term. The credit score you lease company requests identifies how likely you are to make such payments. It is simply a number calculated according to a model that takes into account your payment history, any amounts you owe and credit currently in use.   

It is very important to maintain a good credit-score, usually above 700, to qualify for a lease, unless you are going to pay for the lease in full in advance. Your payment history is the single most important factor in determining your credit score, so get in the habit of paying everything you owe on time and keep the balances low in your credit cards.

Auto Insurance and Leasing
When leasing a car, it’s easier to stick with the manufacturer for your car for auto insurance, but you will probably pay much more for your coverage, you should definately compare quotes from other insurance providers such as state farm, progressive or geico.

When you lease, you are called the leassee and the vehicle that you will drive belongs to the leasing company, also called the lessor. The lessor will want their investment covered in the event the vehicle gets damaged, totalled or stolen. They typically want to get covered for the difference between what your auto-insurer pays and your outstanding leasing obligations at the time of the accident or damage. This is called GAP, short for Guaranteed Auto Protection, and is usually included in the leasing contract. If you are leasing from the automaker finance division, then your GAP insurance coverage will be offered by the same lease company. You are under no obligation to accept GAP insurance included as part of your lease agreement.    

Using Lease Calculators

If you are considering a car lease, then you might want to know some key figures involved in the deal: the monthly lease payments, the overall cost of the lease and how much savings can be made compared to purchasing the vehicle.

A lease calculator relieves you from the stress of having to know the complex underlying lease formulae used in calculations. You simply plug a number of figures into the calculator and hey presto! You get a detailed rundown of detailed payments, taxes and total lease costs.
 
Figures you need to get from your dealer about a specific lease are: capitalized cost, estimated residual value at the end of the lease, the number of months in your lease and the money factor. Make assumptions and change some of the figures to see how it affects your lease payments. For instance, residual value is an “estimated” value of what the vehicle will be worth at the end of the lease. You can input different estimates to cover different scenarios and assumptions.

As a final note of caution, bear in mind that lease calculators only do calculations and check the accuracy of abstract mathematical formulas. They can not tell you whether a lease is good or bad.  

Educate yourself about leasing and make sure you understand what the leasing terms used by dealers are. Crunch the numbers along with him and understand how they arrived at the monthly payment figure. Don’t sign anything until you’ve understood all the terms completetly. Do not let the dealer pressure you into signing; you are the only one to determine whether the agreement is right for you.

List of Common Car Manufacturers Sold in the United States