Leasing Tips and End of Term Advice
I'll provide you with several money saving tips to aid you in your leasing adventure, and explain how to get out of some common leasing dilemmas that people get themselves into. Then we'll examine what your options are when your current lease is about to expire.
Never Enter a Balloon Lease
Your payments will be artificially low at the beginning but at some future date you have to come up with, for example, $6,000. The problem here, is people forget about this and come balloon time, you're going to pop. The only one who benefits is the dealer, because they sell cars quicker. They try to convince you that you'll be earning more money come balloon time, but truth is, few people have that kind of money. You are better off with simple and predictable monthly payments. No Balloons!
Avoid Leases Longer Than 36 Months
Don't enter any deal for longer than 3 years. Longer than that and it's usually better to just buy the car. Be on the lookout for 39 month terms. It exposes you to potentially large repair bills since the manufactures warranty has expired. It's very sneaky because you are accustomed to seeing 24, 36, 48 or 60 months so your eye only notices the "3" and your brain sees the 9 as a 6.
Roll Your Security Deposit into the Next Lease
This will save you several hundred dollars in closing costs and avoids the situation where they attempt to keep the security deposit. If you have good credit, made all your payments on time and returned the car in good condition, you should be able to convince them to waive the security deposit. If they will not agree, "roll" the security deposit from the last car into the new deal.
Pay Attention to When the Lease Ends
You don't want to be turning in your car during the worst times of the year to get a new one. Pay attention to the termination date and try to avoid having it expire just before the new models roll in. Ideally you want the end of the term to be in September - December.
Always Do a Sanity Check on the Money Factor
Convert it to equivalent APR. If they feed you some BS line about it being too complicated, tell them that you won't sign without it. To get APR, multiply the money factor by 2,400. Here's some ranges of money factor/interest:
|Interest Rate = (Money Factor) * 2400|
|If the Money Factor is...||Then your Interest Rate will be...|
A huge red flag should go up if your money factor is greater than .0075. This means the dealer is charging you over 18% interest. Unless you have bad credit the money factor should be below .00333. This is why they don't quote interest rates.
End of Lease Term Advice
My Lease is Expiring Soon, What Should I Do?
You have some decisions to make. It's time to bring Supermobile LX back to my fictitious dealership Crazy Jeff's Automall. Do you want to buy the car from me or do you want to return it and lease another one? If you were happy with everything and you know you got a good deal then maybe you'll want to do it again. It's usually more expensive to buy the vehicle at the end of the term than it would have been if you bought it initially.
If you really like the vehicle and it was trouble free, then it might be worth buying it. What you do is compare the residual value (what you will buy it for) to the market value of the vehicle at the time. If the market value is higher than the residual value, it's a good deal to buy it.
Your Lease Ends Soon and You Realized You'll Have 50,000 Miles on a 36,000 Mile Lease
There's a few ways to help yourself, none of them are cheap. At $.15 a mile, you'll have to come up with $2,100 or you can buy the car for the residual value (which could be more than market value) and there is no mileage penalty. First, start saving the money now,as any solution to this problem will cost you something. You're either buying the car or paying the mileage penalty. Estimate what your mileage will be and start saving for the penalty. If you can't do that, go to a dealer and trade it in early to get another car. Your penalty for trading early is the amount of negative equity in the vehicle.
Remember the Disposition Fee?
Many people completely forget about the disposition fee, or never knew about it to begin with. If you don't buy the car at the end, you pay a disposition fee up to $400. Salespeople usually lie to you when you and tell you "Just return the car at the end and you owe nothing." If you decide not to buy the car, don't let them charge you more for the disposition fee than the contract calls out. Disposition fees are now required to be listed on the front page of the contract so that you'll be aware of it's existence.
A Few Points To Remember If You Buy The Car At Lease End
Make sure they don't charge you more for the car then the residual value listed in the paperwork. A dealer tried to pull that stunt on one of our visitors and luckily he had read this article before returning the car and put a stop to it. Also be sure they don't charge you more for the purchase option fee than what is listed in your contract. Make sure you have the contract with you so you can show them everything in writing.
Don't Tread On Me!
Leases usually require a good set of tires on the vehicle when you return it or they will bill you MSRP for a new set, whereas tire shops usually give discounts. Make sure the tires are in good shape. Make sure you do not have mismatched tires on the vehicle or they will charge you for new tires. I hope you saved all your maintenance records, in case they try to claim you neglected to care for their car.
Don't Forget Your Security Deposit
If you paid a security deposit make sure you get your security deposit back in its entirety.
Excess Wear and Tear
Don't give them a reason to claim excess wear when you return the car. It's fairly cheap to get it professionally detailed, vacuumed, waxed, and all the major stains shampooed out. The car looks better and gives them less chance to claim excess wear. If the only damage your car has is a few minor scratches tell them it's normal wear and tear for a car that age. If you really feel they are just getting greedy and making up excess wear, tell them how upset you are. Mention that you are never again buying one of their cars and you are going to tell every single person you know.