Jesse Toprak, chief auto analyst at Cars.com, a website with pricing information and reviews for online auto shoppers.
Leases accounted for more than 20% of new-car sales in March of this year — the highest rate since 2005 — as consumers took advantage of increasingly attractive lease terms from automakers. Leasing isn’t for everyone, but it can make sense for drivers who buy new cars every few years and put less than 15,000 miles on those cars per year… or for business owners, for whom leasing can have tax advantages.
Trouble is, leasing is unfamiliar to most car shoppers and lease contracts are complex, creating an opportunity for dealerships to promote lease deals that cost customers more than they should.
Car-leasing traps to watch out for…
Trap: “You’re leasing, so we don’t have to haggle over price.” Dealerships sometimes try to convince lessees that their monthly lease payment is set in stone by the automaker’s lease terms.
What you need to know: Automakers advertise specific lease terms, but that doesn’t mean you can’t do better. There is a purchase price built into your contract, even though you are leasing, not buying. Unless the vehicle is in very high demand, that purchase price likely is negotiable, just as it would be if you were buying. Use a site such as mine, TrueCar.com, to find out what buyers in your area are paying for the vehicle that you wish to lease. If the price in your contract is higher, point that out. You then might be able to get a monthly payment below the advertised rate.
Trap: “I can get you an amazingly low monthly payment — just don’t worry about how many payments you will have to make or how many miles you’ll get to drive.”
What you need to know: Dealerships often try to get lessees to think only about their monthly payment so that they can slip in unattractive terms elsewhere in the lease contract. The lease’s length and mileage limits are two potential trouble spots. If the term of a lease has been stretched beyond three years, the deal probably isn’t as attractive as its monthly payment makes it seem. For one thing, the vehicle’s warranty might last only three years, which means that you could end up responsible for expensive repairs. Also, be wary of lease contracts that have mileage limits of less than 15,000 per year. That could result in thousands of dollars in overage fees. But if you don’t drive much, be sure to ask the dealer if you can lower your monthly payments if you accept a very low-mileage lease program.
Trap: “Lease a new car, and we’ll get you out of your upside-down loan on your current vehicle,” where you owe more than the car is worth. That might sound like a great idea, but beware of the fine print.
What you need to know: A dealership that makes this offer likely will imply that it is absorbing a loss on your old vehicle. More likely, though, it intends to roll the amount owed on the used vehicle above its trade-in value into the new monthly lease payment without telling you that this is what’s being done.
That isn’t necessarily a terrible way to get out from under an upside-down auto loan if the interest rate on the new lease is lower than the one charged on the old loan. Just don’t let the dealership claim that it can’t negotiate other parts of the lease, such as purchase price or trade-in value, because it already is absorbing your upside-down loan. It likely is doing no such thing.
Similar trap: Be wary if a dealership offers to let you out of an existing auto lease early if you agree to lease a new vehicle. Automakers occasionally make these offers, but they typically are mailed directly from the automaker to the lessee. Dealerships have no legal standing in lease contracts and cannot terminate existing leases early even if they wish to. A dealership that makes this offer might intend to roll the remaining lease payments on the old vehicle into the new lease without telling you… or perhaps it simply intends to return your old vehicle to the automaker early, incurring penalties that you will have to pay. If you want to get out of a lease early, the best bet often is swapping it for another leased vehicle through LeaseTrader.com or LeaseSwap.com.
Trap: “There’s no way to avoid acquisition fees with a lease.” Automakers (and third-party lease companies) inevitably impose an acquisition fee, sometimes called an assignment or a bank fee, when they set up a new lease. This ranges from a few hundred dollars to more than $1,000, depending on the automaker. Attempts to negotiate this fee away inevitably are shot down.
What you need to know: The dealership is being honest when it says that lease acquisition fees are imposed by the automaker and can’t be avoided. But there’s a chance that the dealership is neglecting to mention that this fee could be reduced. An ever-increasing number of dealerships are inflating automaker acquisition fees and keeping the excess for themselves.
Before visiting a dealership to lease a vehicle, locate the advertised lease terms for that vehicle on the automaker’s Web site. The acquisition fee will be disclosed somewhere in the small print. If the acquisition fee in your lease contract is higher, the dealership is inflating it and you might be able to negotiate away some or all of the excess.
Trap:”You have to buy life and disability insurance with this lease — it’s the automaker’s rule, not ours.”
What you need to know: Dealerships sometimes try to force lessees to buy extras such as life and disability insurance or rustproofing, insisting that the automaker requires it. Automakers never require such things.