But the biggest flaw of Regulation
M is the lack of disclosure requirement for the money factor. This
is the most important number to calculate lease payments, and because they
are not required to put it in writing, many dealers lie to you about this
number.
Click
Here to get ALG Residual Values and Lease Software Info
|
If
they don't list all 16 items, don't sign the lease!
I am amazed by how many emails I get from people
who signed a lease, and did not get papers stating the selling price of the car
or clearly itemizing their trade-in. It's required by law, so make sure
they give it to you. When you by a computer or TV you inspect the receipt
like a hawk. So why let them steal your trade-in, and why walk out of a
dealer after leasing a $20000 car without a receipt that tells you how much you
paid and what the interest is? If you are stupid enough to lease a car and not
take home a contract stating all 16 items above, don't bother emailing me asking
what you should do when you find out you got scammed. I don't reply to
emails of this type, I just delete them. You have no option, because you
signed the papers, which means you understood the lease, and you cannot get out
of it. |
Regulation "M"
Model Lease Form
Because I like you folks
so much, I included the Federal Reserve Board's Regulation M Model Lease Form for download.
Do yourself a favor and print it out now. This will give you a heads
up on what a lease contract should look like. You should insist the
dealer give you all the data necessary to fill out this worksheet.
The form gives you a great summary of what is really going on. Older
lease "forms" made it easy for them to hide the fact that they gave you
nothing for your trade-in, and charged you full MSRP for the lease, because
they only showed your monthly payment. I'm upset that there is no box for
the money factor. If the dealer does not disclose the money factor
they are breaking the law. GET UP AND LEAVE. You have no business
dealing with a loser who refuses to tell you the interest they are charging
you, in writing. It's called the Truth In Lending Act. If they
refuse, they have something to hide, and they don't deserve your money.
Get
The Money Factor In Writing On Your Lease Contract!
The form does not provide
boxes for "Dealer Service Fees", or "Bank Fees". So make sure they
are spelled out in one of the "Other" fee lines. These fees are present
in many leases, and are part of your inception costs. They hide it
in their ads by saying, "$5000 down, total due $6998". This means
you put down $5000, plus first month, plus security, and the remainder
is the sum of all these extra fees. I'm surprised they don't have
a cover charge to enter the dealership. Shhhhhhh! They'll
hear us!
Download The Regulation
M Form Here:
The form is in Adobe Acrobat
format.
Click on picture to download Model
Lease Form
The Regulation
M Drawback
This law does have a drawback.
As usual, every time our government comes up with a law to protect us consumers,
it's half assed. The law only covers consumer leases up to
$25000!! Any decent car you and I would consider buying is NOT covered
by this law. Want a BMW or a Lexus, or any other fancy car?
You're stuck where you were before. Are you leasing a car through
your company? Too bad. Why did the government drop the ball
on this law? Can you say... Lobbyists? Can you say... Condo
in the Caymans? Can you say... large breasted interns? Get the picture?
We can only hope that dealers adopt the RegM form for ALL leases. That's
how an industry with an image problem can redeem itself.
When the numbers are on the
table, ask yourself "HOW MUCH IS THIS LEASE REALLY COSTING ME?"
Just add up all the monthly payments, including taxes, and interest, and
all of the down payments and up front fees, subtract first month's rent,
and arrive at your total cost for the entire lease. Then divide that
number by the number of months in the lease. This gives your effective average monthly payment for the lease.
Most of the scams can be eliminated when you use sites like InvoiceDealers,
Cars.com,
Yahoo!Autos,
Autos.com,
Edmunds.com,
MyRide.com and
CarsDirect
because you are bypassing the lot salesman and dealing directly with fleet managers who are generally much better people to work with, salaried employees
who won't be working up the street a week later.
Common
Car Dealer Lease Scams
Beware of artificially
low interest rates, They can lie about the money factor!
Many dealers quote a low
interest rate or money factor, but if you check out their numbers, it's
really higher. A reader sent me their lease with a "4.5%" rate, yet
it calculated out to 6.5%. They amortize some of the closing fees
like security deposit and dealer acquisition fee into the lease.
Put a stop to this. If you have the cash, pay it up front.
Why should you pay extra interest on wasted fees too? One reader emailed
us to say the dealer quoted a money factor that had an equivalent APR of
6%, but we verified it to be 9%. If they can't tell you the
interest you are paying in writing, don't lease from them.
Always,
Always, Always have them write the money factor on the contract in case
there is a dispute later. Lowballing money factors is the biggest
complaint from our readers.
They can lie about
the Early Termination Penalty!
You're ready to sign and
you ask the salesman what the penalty is if you terminate the lease early.
They'll say there's a $200 early termination fee. You think, wow
that's really cool, it's only $200 to get out of the lease. Where
do I sign? But what the salesman "forgot" to tell you was the $200
is not your penalty, it's an administrative fee that's charged on top of
the thousands that your actual termination penalty can be.
Don't
get Early Termination Fee confused with Early Termination Penalty.
You are charged both.
They can pad your
early payoff penalty!
You run into a bind and
needed to get out of your lease. You call the leasing company and
ask for the early payoff penalty. Do you know the formula they use
to calculate your penalty? You are at their mercy. Sometimes
they pad this number, and numerous state Attorney General charges have
been filed, and many successful lawsuits have been filed in connection
with this practice. People
With Ford Leases Click Here!
Total of monthly
payments is...
Almost every leasing ad
has a phrase that says "Total of Monthly Payments is..." or "Total
Payments=", etc. They are relying on your brain to pull the Jedi
mind trick for them. They know your brain will tell you that "amount
of payments" is the total amount the lease will cost you, but in reality,
it's thousands more! In a BMW example later in this section,
you'll see the ad says "Total of Monthly payments $22,200." So your
brain tricks you into thinking the lease is only costing you $22,200.
But this is wrong because the ad also says you have to pay $6490 in cash
down and fees, plus the monthly payments quoted don't include tax, so that
adds even more. By time you are done with the correct calculations,
the true total cost of the lease is over $29000, a full $7000 more than
the ad implies. How do they get way with this? They didn't
lie, they simply said the total of monthly payments = $22,200. That's
the truth. But they know that your brain will focus on the word "Total",
and tell the rest of your body that the lease will only cost you $22,200,
and your hormones go wild, you start foaming at the mouth because you think
you are getting a good deal, and in the intoxication of euphoria, you sign
the contract. Most people never even find out they were wrong, nor
do they know how to properly calculate how much a lease is really costing
them.
They'll always
"prove" leasing is cheaper than buying!
Many buyers think they are
sharks and will arrogantly say "Alright, prove to me that leasing this
car will be cheaper than buying it", thinking they'll win the argument.
They sit back and wait, expecting the loan to work out cheaper. But
every time the dealer comes back with numbers "proving" that leasing is
cheaper. Never rely on their calculations, sometimes they use corrupt
software that will always show leasing costing less. You should know
how to compare before you even ask them. One thing many dealers leave
out of these calculations is bank fees, dealer acquisition fees, disposition
fees, purchase option fees, and some "forget" to include tax, making leases
look much cheaper than buying. This can add over $1000, or $27 per
month to a 36 month lease. A car still depreciates about 50% in 36
months whether you buy it or lease it. Back to back leasing is actually
worse than buying because you lose 50% every 3 years.
They can slip
an extended warranty into the deal when you are not looking
This is an all time classic
leasing scam. Because they start by writing down a monthly payment
they think that you'll be happy with, they already have their foot in the
door. The monthly payment already has the extended warranty built
into it. That's another reason not to negotiate from the "monthly
payment" standpoint. If you are in a 24 month lease on a car with
a 36 month standard warranty, there is no reason to purchase the extended
warrant. It's all icing on their cake. If you lease for 36
months and the warranty is 36 months, you still don't need to buy the warranty.
If you lease for 48 months....well you should not lease that long.
$0 Security Deposit
This is another classic
shell game with the cash flow. They'll say there's no security deposit.
On one lease ad you don't have to pay the $300 security deposit.
But there was a $350 disposition fee at the end. To me, security
deposit and disposition fee mean the same thing. The purpose of both
is to make you pay for any cleanup required on the car, which should be
part of excess wear fees. You're going to pay it one way or the other.
So they use disposition fee as a holding bay for security deposit to make
it look like you don't have to pay one up front. Smart lease shoppers
will look at the big picture, watching all fees like a hawk, and not fall
for this. If you see both a security deposit and a disposition fee,
have one or both removed.
They increase
the number of months in the lease!
You've negotiated them down
to a $450/month payment but you want more. But for how many months?
The salesman might say: "Alright you got me, you win. I'll
lower the price down to $430/month. So you agree, but if you're a
hawk, you'll notice on the lease he just increased the number of months
to 39, which means he just squeezed another $570 out of you because you
were too busy celebrating in the end zone about the lower monthly payment.
It's amazing how your brain tricks you into thinking a 39 looks like a
36, as you are expecting to see 24, 36, 48, 60, so the eye focuses only
on the 3. Don't let this happen to you! Never sign a lease
term longer than the warranty period.
They can steal
your rebate!
On a lease sent to me by
a reader, the dealer quoted a $900 rebate, but under a made up category
called "Drive Off Deposit", they stole it back by itemizing a $900 fee.
So if you ever see a "Drive Off Deposit" on your lease, just drive off!
No Deposit.
They won't give
you credit for your trade-in!
If they use lease forms
that don't clearly itemize reductions to the capitalized value, they can
omit the trade-in, and you are screwed. There's no way out of the
deal and they got you, because you signed a form stating you understood
everything. Always make them point out exactly where your trade-in
is in the figures.
They can pad the
residual amount!
They list an over inflated
residual amount on your lease. This artificially reduces the depreciation
on the vehicle, resulting in lower monthly payments. This is good
for you if you don't buy the car at the end of the lease. But if
you do buy the car at the end of the lease, you will be paying significantly
more than fair market value, which is bad. Artificially high residuals
only work out to your benefit if you don't buy the car at the end.
There are very few cases where buying at the end of a lease will work out
cheaper than buying the car in the first place. I don't recommend
buying at the end of the lease.
The discount internet car buying sites like InvoiceDealers,
Cars.com,
Yahoo!Autos,
Autos.com,
Edmunds.com,
MyRide.com and
CarsDirect
train dealer contacts to be honest and not pull all the scams we mention here.
Add
state tax to EVERY monthly lease payment quote in every dealer ad.
This
is a way for them to legally low ball your monthly payment. The fine
print always says "monthly payment, excluding taxes". Thus a $399 payment
in their Sunday ad is really $423.
Remember
also that all ads state: subject to credit approval. They
can find a way to say
"Sorry, Jeff, we could not get you approved at this rate. We could
only get you approved at 18% APR."
