In Part 1 of “Should I Lease My Next Car?”, I told you about my friend who’d asked whether he should lease his next car. I gave him some leasing qualifying questions and a heads up on leasing terms. Now, I’d like to go into the details of leasing, and how they can affect your deal.
Leasing – Wear and Tear Allowance
Many leases have a wear and tear allowance covering dents, scratches, and general usage. This amount may not be openly disclosed, unless you ask what comes with your lease. Make sure you know the allowance amount before heading into the finance office – because once you’re there, you could hear something like, “For just a few more dollars a month, you could buy $5,000 of extra wear and tear coverage.” Often, these pitches are accompanied by a collection of worst-case scenario lease-end bills. If you were unaware your lease came with $1,500 of wear and tear coverage, buying more might seem like a good idea. Truth is, you really don’t need it, unless people have a habit of throwing bowling balls at your car.
Leasing – Disposition Fee
Some lenders have a “disposition fee.” Simply put, it’s a fee just to turn in your car when the lease is over. Your salesman isn’t likely to bring much attention to this fee, so make sure to ask about it. And remember the lease terms explanation from Part 1: After three years in a 39-month lease, you’ll pay another year’s registration. Then, just three months later, you’ll pay this disposition fee as well as a year’s registration for your next car.
Leasing – Security Deposit
Many times, a lender will waive a security deposit, either through a promotion or because you’re re-leasing another car from the manufacturer. If you will pay a security deposit, make sure it’s listed on the lease contract. I once witnessed as a rather unscrupulous General Sales Manager tell a customer that the deposit would be subtracted from the security deposit field and added back into the price. He even had his own terminology for it: a “minus one plus one, which equals zero.” He was so convincing that even I became confused. Well, his “minus one plus one” simply doesn’t add up. If you have a security deposit, it must appear on your lease contract – not added back into the selling price as another chunk of dealer profit.
Leasing – Money Factor
The money factor, simply put, is the lending rate. Your qualifying rate depends on your credit, but you should know about dealer markups in relation to the buy rate you qualify for. I once helped a friend lease a BMW. I called several dealers and after an hour, I found one whose quote was $500 lower than everyone else. We zipped down to the dealer, of course. As it turned out, they were ready to honor their price, but insisted on a rate with a significant markup. I whipped out my phone and ran some calculations. With this dealer, my friend would’ve paid $6,000 extra for that BMW. We bolted out of there. My friend gladly paid the $500 more at another dealer at a better buy rate, saving $5,500. This leads me to one of the reasons I love CarWoo! so much as a dealer: If someone requests a lease quote, we dealers have to disclose the money factor used in our calculation.
Any other leasing questions you’d like me to answer? Feel free to post them in a comment below, or email me. In this article, I wanted to skip over all the basics you can find elsewhere and launch you into expert mode. Even if you don’t feel like an expert yet, you’ll sure sound like one and chances are you probably already know more than many salesmen.