Seniors: Think Twice Before Leasing a Car - by Earl Stewart

Leasing a new vehicle is very different from renting. When you sign a 36-month or 48-month lease, you obligate yourself for 36 or 48 monthly payments, even if you can no longer drive. You’re also responsible for maintaining insurance on the leased vehicle, even if it’s not being driven. You may become incapacitated or your driver’s license can be revoked. If you die, your estate is obligated for the remaining payments.

It’s possible to have your lease assigned to another person, but this must be approved by the leasing company. There are companies that, for a fee, specialize in finding people to assume lease payments, but these people have to have the approval of the leasing company.

You may have noticed that most new car advertising is for leasing, not buying. This is because car dealers average a much higher profit from a leased car than a purchased car. Also, the car dealer has a much better chance of keeping you as a customer if you lease. You must return the car to the dealer at the end of the lease. The car dealer and leasing company (usually the manufacturer) have monthly contact with you, because your making lease payments. Leasing companies penalize you with a “lease disposition fee” if you opt not to buy or lease another car of that make.

For all the above reasons, the car dealers and manufacturers will encourage you to lease rather than buy. Be forewarned that unscrupulous salesmen will give you bad advice to persuade you to change your mind about buying and leasing instead. They earn much higher commissions on leases, and they’re more likely to lease or sell you another car. The expression used by car salesmen when they attempt to do this is called the “Lease Flip”. The sales manager will instruct his salesman who is having difficulty making a big profit on a car purchase to “Flip her to a lease”. The salesman will try to focus your attention on the lower monthly payment of a lease and not mention the fact that you are building no equity when you lease like you do when you purchase. He won’t mention the higher cost of insurance, excess mileage charge, lease inception fee, lease disposition fee, or the charge at the end of the lease for excessive wear and tear. Some sales people will imply, or say, that you can return a lease early without any penalty. Too often your trade-in is undervalued or not valued at all on the lease contract. Lease contracts are very complicated compared to purchase contracts. There’s lots of fine print and variables that affect the total cost. The main numbers you have be aware of are the lease factor (interest rate), residual value (estimated value at the end of the lease) and the capitalized cost. The capitalized cost should reflect the fair credit for your trade-in and should represent the discounted price if you were buying the car.

With all that said, a lease can be just as good a value as a purchase, but leases are far more complicated. This gives the car dealer, manufacturer, and car salesman more of an upper hand. There’s an old joke that goes like this…” If you sit down at a poker table, look at all the other players, and can’t figure out who the sucker is…it’s probably you. Always be extra careful when you’re playing somebody else’s game.