To lease or to buy? When you buy a car, you own it. When you lease, you pay to drive someone else’s vehicle. However, leasing can involve lower monthly payments than a loan. At the end of the lease, though, you have no ownership or equity in the car. Many dealers and other lessors offer vehicle leases. Before you decide whether to lease or buy, remember — don’t be dazzled by so-called deals. Ask questions, nail down the details, read the fine print and shop around.
If you’re thinking of leasing, the Federal Trade Commission offers these shopping tips:
• Shop as if you’re buying a car. Negotiate all the lease terms, including the price of the vehicle. Lowering the lease price will help reduce your monthly payments. Get all the terms in writing.
• Learn the language of leasing.
o In a closed-end lease, you return the car at the end of the lease and walk away, but you’re still usually responsible for certain end-of-lease charges, such as excess mileage, wear and tear, and disposition. In an open-end lease, you pay the difference between the value stated in your contract and the lessor’s appraised value at the end of the lease.
o Lease inception fees are payments you make before the lease starts. They may include a down payment, security deposit, acquisition fee, first month’s payment, taxes and title fees. Ask for a list of all charges due at lease inception. You may be able to negotiate on the terms.
o The capitalized cost is the price of the car for leasing purposes plus taxes and extra charges like service contracts and registration fees.
o The capitalized cost reduction is similar to a down payment. If you’re trading in a car, make sure the dealer applies the trade-in value to the price your lease is based on. The trade-in credit may reduce your down payment or monthly payments.
• Ask whether extra charges will be assessed for excessive mileage, wear and tear, disposition and early termination, and find out the amount of these charges. Most leases allow you to drive 12,000 to 15,000 miles a year. If you put on more miles, expect a charge of 10 to 25 cents for each additional mile. You may think the ding in the door or coffee stains on the upholstery are normal wear and tear — to the lessor, it may be significant damage. Check out penalties for an early return and expect to pay a substantial charge if you give the car up before the end of your lease.
• Make sure the manufacturer’s warranty covers the entire lease term and the number of miles you’re likely to drive.
• Consider gap insurance to cover the difference — sometimes thousands of dollars — between what you owe on the lease and what the car is worth if it’s stolen or totaled in an accident.
• Before you sign the deal, take a copy of the contract home and review it carefully away from any dealer pressure. Be alert for any charges that were not disclosed at the dealership, like conveyance disposition and preparation fees.
• Federal law requires lessors to provide lease cost information before you sign the lease. Take a copy of the attached form to the dealer and ask them to complete it. Some dealers may be willing to provide the information during your shopping process. If the dealer declines, consider shopping elsewhere.
For more information about buying or leasing a car, visit the FTC’s Web site at http://www.ftc.gov/bcp/menus/consumer/autos.shtm. To file a complaint or to get free information on consumer issues, visit http://ftc.gov or call toll-free, 877-FTC-HELP (877-382-4357); TTY: 866-653-4261.
Adapted from “Look Before You Lease,” (Federal Trade Commission, May 2003), http://www.ftc.gov/bcp/edu/pubs/consumer/alerts/alt005.shtm
(accessed October 6, 2010).
Brenda Procter, M.S.
Associate State Extension Specialist & Instructor
Personal Financial Planning Department
College of Human Environmental Sciences
University of Missouri-Columbia
162 Stanley Hall
Columbia MO 65211-7700
Phone: 573-882-3820
Fax: 573-884-5768
E-mail: ProcterB@missouri.edu
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