How to Protect Yourself: Car Leasing
Source: The Florida Attorney General's Office
Although lower monthly payments may make auto leasing appear to be an attractive alternative to financing the purchase of a car, the technical and complex language can cause car leasing to be an option that is fraught with pitfalls for the average consumer. The Florida Attorney General has received numerous complaints from consumers, many of whom have been pressured into auto leasing, have not been credited for their trade-in vehicle, or have complained of being defrauded in other ways. Once you sign a lease, you have no automatic legal right to cancel. Before entering into an auto lease, consider the following:
What is a vehicle lease?
A lease is a long-term rental agreement. You are paying for the right to drive a vehicle for the term of the lease, but you do not own it. In most instances, you will be responsible for all maintenance on the vehicle, and your insurance rates will usually be higher.
Isn't a lease a good deal if my monthly payments are less than if I purchased the car with financing?
Not necessarily. The monthly payments should be significantly less because you don't own the car. Your monthly payments are based upon the following items:
Capitalized Cost or "Cap Cost" - This is the price of the car. The lower the cap cost, the lower your monthly payment. Cap cost may be the same as the sticker price, which is the manufacturer's suggested retail price (MSRP) of the car, but you can negotiate for a lower cap cost, so don't be afraid to shop around. The cap cost is reduced by the amount of cash or trade equity that you put into the deal that exceeds inception and acquisition fees. The correct amount of credit for your trade-in should be indicated. If manufacturer rebates or dealer coupons are offered, such credit should also reduce the cap cost. Your total credits should be specified.
Money Factor - This is the interest rate. The lower the money factor, the lower your monthly payment. The money factor will usually range from 0.0021 to 0.0046. Ask the dealer to put your money factor in writing, then multiply it by 2400 to calculate the interest rate. Remember that even the money factor is negotiable.
What else should I know about leasing?
The Motor Vehicle Lease Disclosure Act took effect on October 1, 1995 and provides that all leases must meet certain requirements. You are entitled to copies of all documents which you sign during the course of the lease transaction, especially the lease contract which will contain several very important terms. The lease contract will be clearly marked as a lease and will list price of the car or truck with any added options and costs. Your net trade-in value, cash, or rebate will be listed as will the bottom line price of what you are leasing. It is important to review these disclosures carefully. Make sure that they reflect what you negotiated with the dealer.
You should be wary of:
Leasing a car on the first visit;
Relying on verbal promises made by agents or lease managers;
Giving the agent a deposit before you thoroughly read, understand, and are satisfied with any completed lease agreement; and
Paying a lot of extra money for an extended service contract when your new car warranty will provide coverage for the major portion of the lease term.