Katies bad lease experience was likely due to inexperience
Dec 12 '99
I have leased three auto's, and can speak from experience. It sounds very much to me that Katy's bad lease experience, was with a BOTH disreputable leasing firm, AND I suspect a new car dealer which "allows" their sales personnel to "discretely" inflate the purchase price of leased autos.
Basically, there are two types of leasing bank's. The car manufacturer's own leasing bank, and independent leasing banks. The most "friendly", is the auto company's own leasing division. They are also the most expensive, UNLESS business is bad for them. When business is bad for auto companies, they will often offer auto leases below their costs. Experienced lease buyers snap up subsidized auto leases that are "held" by the car companies own leasing division. Additionally, the auto car companies own leasing divisions are fairly tolerant of minor paint chips and dings at lease termination.
Next are the independent leasing companies. Most are okay. But in my opinion, some are flat out disreputable. Remember that ANY independent leasing bank prefers that you do not return the auto at termination, (they "sell" money, not autos; if the auto is returned, it is more work for them, and may take 6 months before they finally receive payment for an auto that must make it's way to be sold at auction). While on the other hand the auto companies leasing division wants to keep you a happy repeat customer, and are able to adsorb lease returns. So, unless you are reasonably sure you can return the auto at termination in VERY good condition; do NOT lease autos from independent lease banks!
I suspect that Katy's bad leasing experience was with a disreputable leasing bank. What she described that happened to her, is the same thing the my first leasing bank TRIED to do to me. Notice I said tried; they did NOT succeed. In New York there are ways to protest such tactics, and win. (Although I won, I'd rather avoid it happening again by simply negotiating good lease terms from then on).
Let me point out another factor with my first leasing experience, was strongly influenced by the new car dealer! I learned later, (it can be extrapolated from a lease contract no matter how hard the auto dealer tries to hide it), that my salesman inflated the auto's cost to the Lease company. The salesman surreptitiously wrote up the leasing contract for 110% of list price, even though I negotiated a purchase price of 90% of list price. But in order for that scam to "work", requires a tacit conspiracy between the new car dealer and the leasing company, (the lease bank ignores the excessive capitalized cost of the auto). I ask anyone who advocates never Leasing auto's to remember that the salesperson who writes up a new car purchase is the same one who writes up the Lease contract!
When a lease contract is written for inflated capitalized cost by the salesperson, what must also occur at the lease bank is some combination of two things. Either the value of the auto at lease termination is wildly inflated above realistic market value, (is necessary for Lease company's financial calculations to use an unrealistically high residual value if the capitalized cost is excessive, in order to make monthly lease instalments lower, for say a 3 year lease term, when compared to a straight 5 year purchase). Or perhaps the lease contract, (as ALSO happened in my first lease), does not disclose any residual value, (may say something vague like the leased auto's Lease termination purchase price is according to market conditions in a auto trade publication). Then, 6 months before lease termination the lease bank starts annoying the customer to purchase the auto at an inflated price. In either case, if the customer refuses to purchase the auto at lease termination; I believe the lease company will often assess wildly inflated "excess wear and tear" surcharges in order to make up for their losses for under-writing a auto for unrealistic financial terms.
What to do? Negotiate the purchase price, and make sure the purchase price, a.k.a. "capitalized cost" entered into the contract is the same as the price you negotiated! Thankfully, a new law requires a dealer to clearly disclose in the contract the "capitalized cost" the leasing company is paying for the auto. Capitalized cost of the auto is probably the single most important factor affecting the true cost of the lease. Reject any lease if the capitalized cost is excessive, but the monthly lease installments are low. Run out of the dealership if the salesman tells you not to worry about excessive capitalized cost because "you are not actually buying the auto".
Similarly, you need to be sensitive to the residual cost of the auto at lease completion in case something unexpected happens. Perhaps you accidently drove more miles than you purchased, or maybe some minor vandalism occurred, and while the damage is not bad enough to claim on your auto insurance policy, nevertheless the surcharges might make you reconsider turning the car in, because keeping it might then be cheaper when the unexpected surcharges are factored in. Therefore, do not enter into leasing contracts with excessive residual value. You can approximate the realistic residual value as a percentage of list price when it was new, by going to your public library and checking the wholesale trade in value of a similar used auto (at the same age of your contemplated lease term) in a auto wholesale "blue book". I avoid leases where the contract's Lease termination residual value is 30% or more than my WHOLESALE blue book approximation.
Finally, no matter how carefully or shrewdly you lease autos, leasing autos will always be more expensive if compared to buying a new auto and keeping it for 10 years. The deciding factor must be that you want to drive a new car every 3 years, (as opposed to every 10 years if purchased).
In summation; watch carefully both the capitalized cost, and the residual value of the auto.
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Epinions.com ID:
ejmuller
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Member: Erika Muller
Location: Levittown, NY
Reviews written: 38
Trusted by: 7 members
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