Smart Car Leasing

Almost one half of new car transactions are done by leasing. If you’re trying to get a good deal on a car lease, be warned. You’ve got a tough road ahead. Ads don’t give you enough information, and neither do car salespeople. Here are red flags to watch for:

• Make sure the deal is really a lease. Know the difference between a lease and balloon payment loans (i.e., loans that don’t pay off completely over the term until the last payment, which is often thousands of dollars larger than the others). If it’s a lease, legally, it should say so in the ad. And always read the leasing agreement (contract) thoroughly before signing. It's always a good idea to have an attorney look at any contract you feel unsure of before you sign it.

• Check the actual price of the car. Dealers use the "capitalized cost" of a car in a lease transaction. It may be the same price they’d sell the car for, or it may not be.

• Double-check how much cash you’ll pay up front. Some ads will claim "no down payment," but up-front charges can add up. Check for acquisition, processing fees or security deposits, and added costs if you buy a maintenance contract, life or disability insurance. If you see the term "capitalized cost reduction," don't be fooled. That’s a down payment.
• Confirm how much mileage you can run up before paying extra. Ask how much additional miles will cost. Make sure you’re aware of any charges if you turn the car in early. Keep an eye out for annual limits. You could be charged extra miles in a particular year even if you don’t go over the overall limit.

• Check the maintenance terms of the lease. Make sure you know your responsibilities as listed in the lease. For example, you will be responsible for regular maintenance, such as oil changes and tire rotations during the term of the lease. Failure to maintain the vehicle properly could void your lease or your purchase option. Be sure to read the agreement and mark your calendar to remember maintenance requirements.

• Closely examine the purchase option, which is the price you can buy the car for at the end of the lease. If you are planning on purchasing the car at the end of your lease, be sure that the price listed is acceptable before signing the lease.

• Ignore a dealer who tells you the lease carries an especially low interest rate. Interest rates can be manipulated to look artificially low. Concentrate on the lease’s other terms and choose what looks like the best buy.