3. Quote the Factor
as APR
This scam involves tricking the customer
into thinking the lease has a lower interest rate than it really does by
quoting the money factor as the interest rate.
How it Works: The lease
charge or interest portion of your payment is calculated with what's
called a money factor (see Calculating Lease
Payments). A money factor is always a decimal number beginning with
'.00'. An example of a money factor is .00345. At first glance a
money factor looks like an interest rate shown as a decimal, but in
reality they are quite different. For example, a money factor of .00345
would be equivalent to an interest rate of .083 or 8.30%. This scam
uses this similarity as cover to lie about the interest rate on the lease.
It goes like this: the salesman boasts about a special low lease rate of
2.6%, then calculates the lease payment using a factor of .00260. The
equivalent interest rate is in reality about 6.24% or $52 a month for 36
months on our $20,000 car. The total overcharge: $1872. The beauty of this
scam is that if the dealer gets caught, it boils down to a "simple
misunderstanding. I said 2.6 and you just thought I meant 2.6%." This
scam is growing in popularity since new disclosure laws have put a damper
on Scams #1 and #2 (the new rules require disclosure of everything but the
factor or interest rate).
How to Prevent: Ask for
the money factor and the interest rate. Get the salesman to write this
down on the back of his business card. This will avoid any of those silly
"misunderstandings." |