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Extended
Warranties
Start
Your Own
Auto Consulting Business
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Competition
is the Name of the Game |
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The Internet offers a quick,
efficient way to request auto lease quotes from multiple dealers. We
recommend clicking on each of the links below to harvest two
or three quotes before setting off to do battle.
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The Truth About Leasing -
Part 4 |
Part 1
Part 2
Part
3 Part 4
New Regulations
In 1997 the Federal Reserve Board, who has jurisdiction over
automotive lease transactions, modified its Regulation M to require dealers to disclose in
writing certain facts about the lease at the time of inception. The new requirements, also
known as the Federal Consumer Leaseing Act, went into effect on January 1, 1998. This
federal regulation requires the dealer to disclose the gross capitalized cost (purchase
price), capitalized cost reduction (cash down), adjusted capitalized cost, residual value,
rent charge, lease term (number of months), and monthly payment. Although the regulation
does not require disclosure of the money factor or interest rate, one can easily calculate
it from the information disclosed. In addition to disclosing the terms of the lease, the
new Reg M also requires disclosure of costs paid at lease signing, mathematical
progression to show how lease payment is calculates, and narrative warnings for possible
charges for early termination and excessive wear and tear.
Some consumer advocates argue the new Reg M requirements fall short of the mark.
Omitting the implied interest rate or money factor makes it difficult for consumers to
compare the lease with other lease deals and other forms of financing. It also allows the
dealers to fudge the numbers to make the deal look better than it really is. Others had
hoped for a "cooling-off period" to allow consumers could cancel if the had
second thoughts. Also, warnings of early termination penalties and fees are stated in too
generically rather than specifically stating "if you terminate you will owe x
amount."
Even with these criticisms, none will argue that the Consumer Leasing Act is not a huge
step forward for leasing.
After All This, Why Should I Ever Consider Leasing?
Despite all that’s been said, leasing does have some distinct advantages. The
most obvious of course is the lower payment and lower up-front cost. This allows one to
drive a much nicer car on a given budget. Other advantages include no-hassle disposition
at the end of the lease and lower sales tax costs in most states. But leasing has one key
advantage that allows a savy consumer to save thousands of dollars by using leasing as
part of a strategy toward long-term ownership of a new vehicle. Here's how it works.
To stimulate sales and move inventory, manufacturers will often offer heavily subsidize
lease programs. These subsidies, usually in the form of artificially high residuals and/or
artificially low interest rates, can dramatically lower monthly payments and the total
cost of the lease. The trick is to lease the vehicle short term, enjoy the subsidy in the
form of lower payments, then at the end of the lease, buy the vehicle for a for a fair
price which is far below the inflated residual. If done properly, this approach gives you
the same benefits of buying the car new off the showroom for thousands of dollars less.
The above strategy requires some key assumptions:
- You don't fall victim to a leasing scam on the initial lease transaction.
- You are able to negotiate a fair price on the vehicle usually within a couple hundred
dollars of invoice price. If there is a factory to dealer incentive on the vehicle, you
should end up below invoice.
- You are able to negotiate a fair purchase price at the end of the lease.
No doubt about it, automotive leasing is not for everyone. But for those who wish to
consider leasing, it is essential that they invest the time educating themselves about the
facts and the potential pitfalls.
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