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	Leasing Part 5: The Law, Your Rights, And Dealer Leasing Scams Revealed In this Section: Explanation of Federal leasing laws, and leasing scams that salespeople can pull on you. Read my online article about using the ALG Residual Values. You'll need this vital data to calculate your lease payments, and look up dealer cost for cars and trucks. View our Review Of Leasing Software that you can use to catch dealers padding your monthly payments. We review car leasing calculator software from Expert Lease Pro. That article also has advice for People With Ford Leases. Online Sites To Get Car Insurance Quotes Just enter your zip code, make & model, and answer a few questions. Moments later the price quotes and comparisons to competing companies appears online. Allstate is known for unique programs such as Accident Forgiveness which helps keep your rates from going up just because of an accident. Even if it's your fault! GEICO is the largest direct writer of private passenger auto insurance in the US. At BestCarInsuranceSite, we show you providers that offer the best rates and overall policies so you can compare and find the one that’s best for you. We'll Get You Out Of Your Current Lease No Matter What You Still Owe! We'll Payoff Your Loan No Matter How Much You Still Own! We'll Give You $4000 For Any Trade-In! These are common ads we hear on the radio. How do they do it? Again they rely on your brain to trick you into thinking the obligations of your current lease or loan just magically vanish. You can't just dump a lease, it's a contract. By breaking the contract, penalties are stiff, in the thousands. The sad truth, which is half the truth, is they do get you out of your current lease, but these payoff penalties must be paid to your current leasing company to end the contract. So dealers pay it off for you, then roll all that debt into the new lease or purchase, and they don't go out of their way to tell you. Now your new monthly payment is actually paying off 2 cars! They put you in a 60 month deal which spreads out your payments, making them lower, and tricking you into thinking you are saving money. Ont he contrary, trading in any car at a dealers ends up costing you more in the long run. How do they pay you $4000 for ANY trade-in? For our Ford Probe, the gave us only $2300. This ad is aimed at trade-in buyers who forget you can't get blood from a stone. They give you $4000, but sell you the car at MSRP or higher, and jam a bunch of useless environmental extras down your throat. Trade-in buyers are the dumbest and never pay attention to what's going on at the back end of the deal, only the front. If ads were really telling you the big picture, here's how they should be worded: We'll Get You Out Of Your Current Lease No Matter What You Still Owe, and roll what you owe into your new purchase, so you'll effectively be paying off 2 cars! The law is on your side Federal regulations took effect in 1998 requiring dealers to disclose information about the terms and costs of your lease. Of course if you use sites like InvoiceDealers, Yahoo!Autos, Edmunds.com, MyRide.com and CarsDirect your chances of getting scammed are much less. The lease information that must be disclosed includes: 1. Total due at closing (down payment, security, first month's payment, dealer service fees, bank fees). 2. The number, amount and due dates of your monthly payments. 3. The total amount of your monthly payments over the entire lease. 4. The cost of the license, registration and taxes. 5. The gross capitalized cost for the leased car (purchase price). 6. The net trade-in allowance for your trade in. 7. Any capitalized cost reduction. (down payment). 8. The adjusted capitalized cost. 9. Rebates and non cash credits. 10. The residual value. (purchase option price at the end of the lease). 11. A description of the insurance provided or required under the lease. 12. The warranty terms. 13. Who is required to pay for maintenance. 14. The standards for determining wear and tear (if the leasing company sets such standards). 15. Penalties for default or late payments. 16. Purchase option price at lease end.

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 for Auto Lease Software Info

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.

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, Yahoo!Autos, 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. Low-balling 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, Yahoo!Autos, 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."

Jump to any section. I suggest you read each chapter in order.
Part 1: Car Leasing Intro What leasing means, how it works, the advantages and disadvantages of leasing, and how to finance a lease.	Part 2: Leasing Glossary Glossary terms used in leasing, and how they are used against you so you'll be prepared for decisions in leasing your dream car.	Part 3: Lease Examples Real world leases with fees attached. A free Excel spreadsheet to calculate your monthly lease payments. How car dealers calculate lease payments.	Part 4: Web Sites To Use Reviews of discount car buying sites, determine how much dealers pay for cars, how to get ALG lease residual values. How to price your trade-in.
Part 5: Leasing Scams Federal leasing laws, and all the common car dealer leasing scams.	Part 6: Lease Dilemmas Money saving tips, getting out of common leasing dilemmas. What to do when your current lease is due.	ALG Residual Values Reviews of top leasing software and where to get ALG residual values. How to avoid lease payment scams.
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