Top Auto Leasing Scams
The excitment of leasing a brand-new car can lead you to rush into a contract without reading the fine print. And, some unscrupulous car dealers can spot an over-excited and unsuspecting consumer from a mile away. So before you sign your name on the dotted line it's important for you to spot a leasing scam. Here are seven of those leasing scams:
One-time payments become monthly payments
One way dealers make more money is to spread out one-time payments, like the security deposit, over the life of the loan (it's called "amortizing"). Rather than having you pay the $500 security deposit upfront, the dealer will do you a "favor" and spread the cost of the deposit over the life of the loan. When it's amortized, it's subject to interest, and of course, you end up paying more. Try to avoid this option whenever possible.
False low interest rate
Dealing with any sort of contract can be confusing. Before you sign your contract for your new car, double-check that the interest rate you are promised is the one you are getting. Dealers can lead you to believe you're getting a good interest rate, but when you read the fine print you're actually being charged a high rate.
Early term policy
If you want to get out of your lease early, you will be penalized and pay thousands of dollars. There is also normally a small fee on top of this penalty. If you ask what the cost is of getting out of the lease, the salesperson may tell you that this is the fee. They're not technically lying -- they're just not telling the whole truth. This is just the small administrative fee on top of the usual penalty. Don't be fooled!
Before you take out a lease, make sure you really want to keep the car for the number of years set in the lease. Getting out of a lease is costly.
Dealers like to say there is no security deposit or fee in the lease. But be sure to read the lease carefully. They can often replace one fee with another fee with a different name -- they are actually the same.
The Term of the Lease
Many people focus on negotiating the monthly payment. That is just half the story. You also need to be aware of the term of the lease: the number of months. Your total price is the combination of the two.
If you pay $350 a month, you might think you're getting a better deal than your friend whose monthly payment is $400. But if his lease is three years and yours is four, you're paying $2,400 more! Do the math: $350 x 48 months is $16,800. $400 x 36 months is only $14,400.
Some dealers will tell you that if you choose to default on your lease that it's not problem. This is not always true. As you probably know, you cannot back out of a lease because it is a contract. If you do break the contract, the penalties can cost you thousands of dollars and damage your credit rating. What happens is that the dealer pays off you bank loan, so you now owe the dealer -- which is worse.
It's so easy for a dealer to convince the unwary that they have to slip in an extended warranty. Some of these warranties are even for a longer period than the lease!
As with any large purchase, it's necessary to do your homework. If you don't you can be scammed easily and end up paying more than you should for a car. For more information on identifying scams or buying a car for the best price, visit Military.com's Auto Center.