Leasing vs. Buying

Many people believe they are buying a car only to get home and find that the documents they signed at the dealer read "lease". READ BEFORE YOU SIGN! ! ! Once you sign the contract the vehicle is yours!

A contract to purchase must have the purchase price.

Under a lease the price being paid for the car is the capitalized cost.

The capitalized cost is the price the lessor is paying for the vehicle and is the basis for determining the lease payments and termination costs. Consumers spend hours negotiating a great price on the car they are purchasing only to sign a lease without understanding what the actual price of the car is. Some leases allow the dealer to increase the price without the consumer knowing.

The dealer will talk about how low the lease rate is but will call it "interest". The lease rate is per month, not per year as interest is calculated. Do not compare "lease rate" with the "interest" on a purchase.

A couple thought they were buying a $13,000 car. Many ads were running in the paper with low interest rates of 1.4% and 2% interest on this particular model. The dealer only talked about the monthly payments. They finally agreed to a monthly payment higher than they originally wanted. When they got home they discovered that the paper they signed was a lease, not a purchase contract. They later discovered from the bank's documents that the capitalized cost of the vehicle was over $20,000. In other words, the bank paid the dealer over $20,000 for the lease and had to recover over $20,000 for the vehicle plus the lease rate and other expenses. The consumer pays for this. Unfortunately this situation is not unusual.

A lease may be an expensive way to purchase a vehicle. The consumer has all the risks of ownership but not all the benefits.

The consumer is responsible for maintaining the leased car and paying for any damage to it. But the consumer does not have unlimited use of the vehicle. Most leases allow only 10,000 to 15,000 miles/year use. The average driver drives 12,000 to 15,000 per year. It is not unusual for a consumer to put 20,000 or more on a car. If a lease only allows 10,000 and the consumer puts 20,000 miles per year over a three year period, the consumer must pay the lessor for the additional 30,000 miles put on the car.

If a consumer must get rid of a leased car before the end of the lease, then the lease must be bought out. The consumer does not just walk away from a lease. This can have tragic consequences when the consumer has had adverse financial problems or has died and the family must deal with buying out the lease. Understand (if you can) the termination fees before you lease (On some leases the termination fees are impossible to determine in advance).

For someone who gets a new car every couple of years, uses it for business, and whose financial situation is appropriate for this type of transaction, a lease may be better than a purchase.

Read both the fine and bold print before you sign a lease. Once your signature is on the document, you are committed. Understand leases BEFORE you agree to lease a vehicle. Leases are great money makers for dealers

Find Out More About Leases

"Leasing a Motor Vehicle - A Basic Guide", by the California Department of Consumer Affairs (outlines how leases work, the pros and cons of leasing and your rights as a lessee. Write DCA Publications, P.O. Box 310, Sacramento, CA 95802.

Ford (provides a lease primer, glossary, and a calculator to estimate monthly payments for a Ford lease) at http://www.ford.com/us/.

Intellichoice Inc. (provides a comparison of manufacture lease offers, lease primer and glossary) at http://www.intellichoice.com.