Dealer Takes All: the Leasing Game

By: Eleora Knoff..

You've seen the jokes and movies starring that caricature of a slick car dealer. He is the one that will try just about any trick to make a buck. It's a shame that off screen and in real life, these shady characters are all too common in every day leasing scenarios. It's not uncommon for unwitting consumers to get so caught up in the new car excitement, and so overwhelmed by the terms and processes, that they are happy to leave the details to the dealer's "expertise".

Automobile dealers and leasing agents do have a few tricks up their sleeves to pull in more profits. Watch out for these tactics, and you can save yourself a bundle:

"Why Buy When You Can Lease?"

Marketers will prey on the emotions of the buyer to sell the product. Automobile dealers know that most consumers just don't have a great deal of disposable income, so they'll use the promise of lower monthly payments to lure customers to signing long term agreements. These contracts can stretch the buyer's commitment to as many as five years or even more, making the payments even lower. There are two catches that can make these lengthy contracts dangerous for the average buyer.

First, possessing a vehicle for a longer period of time naturally means that there will be more mileage on the car at the end of the lease term. It's easy to put 80,000 miles on a car over the course of five years, but even this moderate number exceeds the 15,000 per year mileage limit that is written into most leasing agreements. Many consumers don't fully appreciate their obligations to pay for ever mile over the limit. At 20 cents per mile, those extra 5,000 miles can add up to a hefty bill at the end of the lease. Another disadvantage to an extended lease agreement is wear and tear that will inevitably affect your vehicle. Many warranties cover three years, making you entirely responsible for any repairs or damages that are incurred over the remaining two years.

"Lease at Only Three Percent!"

Always read the fine print in every lease advertisement. The dealer or leasing agent is not quoting the actual lease rate that you will be paying, but simply giving you the lease money factor. It's similar to an interest rate, but not exactly the same. The lease money factor is used to determine your monthly payment, but you can calculate a more accurate rate by multiplying the money factor by 24. For example, the "low" lease rate of 3% is actually the money factor. When multiplied by 24, the product is 7.2%. This is the annual interest rate that you may unwittingly agree to pay on your lease contract.

"Easy Early Termination"

As if. There is never an easy way to terminate a lease. You have signed a legal agreement, and you are legally bound to meet your obligations. You dealer knows that your situation can change and that you may need or want to terminate the agreement early, but there is no "hassle-free" way to do it. The legal lease agreement that you signed requires you to make your monthly payments for the remainder of the lease term, and you have little chance of getting out early. Those who default on their lease payments, or try to end the agreement before the agreed upon term, are hit with hefty financial penalties.

Leasing agents and car dealers use these "bat and hook" tactics every day. How can you protect yourself from walking in to one of these traps? Knowledge is always your best defense, so take the time to learn as much as you can about the leasing process. Become acquainted with the terms used by dealers. Do your own estimations to determine what your monthly payments will be, and then bring the calculations with you. Crunch numbers with your dealer to be sure that you clearly understand how he or she has arrived at the monthly lease payment.

If you're not clear about the terms, or if the dealer's numbers seem unreasonable, don't sign anything. You are the boss in this scenario, and it's your choice whether to sign the contract or simply walk away.

When you're dealing with slick sellers, knowledge is power. Learn as much as you can, be confident and you will have the upper hand in the situation. Only then will you be able to avoid falling for the typical dealer tactics, and only then can you negotiate the best possible deal.