So…I have to pay you forever? (why you might want to reconsider that auto-lease)

If you asked a hundred people to play “would you rather…” and gave them the choice of going through the process of buying a car or getting dental work, how many of them would go to the dentist?  Sadly, this “I’ll do anything but go to the car dealer” attitude causes folks to make some awfully bad decisions.  What we should be thinking:

“Are there hidden fees?
“Has the car been in a wreck?
“Was there an oil stain on the ground under the motor?
“Why is the salesman talking so fast?

soon becomes replaced with what they want to distract us with:

“look at that shiny paint job
“listen to that stereo
“that monthly payment is pretty low.

The next thing you know, you’re leaving the dealership feeling good because the monthly payment is way under your budget.  (Never mind exactly what all those charges are for or how long the warranty lasts…)

The lower the payment, the better you feel. 

Car dealers have long been taught only to speak in terms of the monthly payment. They know how uncomfortable you are. (even BEFORE they read Consumer Courage)  The only problem with this strategy is that new cars tend to be a bit pricey.  No matter how far out you stretch the length of the loan, it’s still hard to get the monthly payment down. 

Enter the lease.  Since you’re only going to have the car for two (or maybe three) years, you don’t have to be able to afford the whole thing. Add in the down payment (for when it starts) and a disposition fee (for when it ends) and you’ve got a monthly nut that is incredibly affordable. Mix in some “you won’t have to pay any maintenance charges at all!” and for the consumer who equates a small monthly payment with victory….voila! 

Why do dealerships want to get you into lease so bad anyway?

First (and probably most important) when the salesman signs you up to lease a car, they get credit for selling a brand new car…for the full sticker price! How does that happen? To start the lease, the manufacturer buys the vehicle from the dealership. Then, they lease it directly to the consumer.  The manufacturer gets to say to their shareholders “We sold another new car!”  and the dealership receives one or more of the many kickbacks the manufacturer is offering for each car sold. It’s a Win-Win!

Editor’s Note: we’ve never liked the expression “Win-win.”  It seems to us that this is the kind of thing that con-artists learn to say just before they sell you a watch with no insides. You can almost hear his scratchy voice as he opens his overcoat on the street to show you his array of timepieces. “No…it’s a win-win see….

If you’ve ever leased a vehicle, you’ll remember that you make the payments to the leasing company that the manufacturer set up (“Ford Motor Credit” or “Toyota Financial Services” for instance) instead of the dealership.  Sure, you’ll bring the car back to the dealer to get worked on – and the lease will tell you to return the car to the dealership. But, if you try calling the dealership to talk to them about your payments they’ll drop you like a hot brick. 

After you return the car to the dealership, they will buy it back from the manufacturer and sell it to you (because you can’t afford to pay all the lease-end fees) from their lot or at an auction.  Think they’re not making money? Add the total of all the payments you made under the lease (monthly payments + down payment + disposition fee + wear & tear charges + over-mileage charges) together with what they sell the two-year old car for and you see that they’ll make a lot more money off that car than they ever dreamed. This new total profit is reason #2 why the dealer wants you to lease a car.

Should I ever lease a car? 

Lower payments: Here’s the good news about a lease, the payments are lower than if you had actually bought the car – much lower.  That’s because you’re not paying for the whole vehicle. The contracts are short when compared to auto-loans. When the manufacturer determines the cost of the lease, they are only accounting for the first two years of the life of the car.  All those fees you pay will make up the difference in their bottom lines. 

New car smell, feel, look: it also gives you the ability to have a new car every few years.  If you are a serial-lessee, you will almost always have that new car smell to enjoy.  (We are not so taken with the new car odor. But, hey it takes all kinds)   If you’re skeptical that car-buying habits are impacted by making the consumer feel that she always has a new car, pay attention to the next car commercial you see. 

Ever notice that they spend an inordinate amount of time showing you things that have no impact on how the car performs?  “Hey, spend thousands on our new model. It’s got 42 cup-holders, a really loud stereo, a flashy paint job, it looks really awesome whizzing around a track in the rain and just watch this ball-bearing roll off the front hood!”  If that stuff didn’t sell more cars, commercials would talk about engine-wear, head gaskets and flux capacitors

Leasing Myths:

    • “You’ll spend less on monthly on maintenance” Leases are usually so short that any major problems that arise will be covered by the car’s original warranty.  Since most dealers are jones-ing to get you into a lease, they like to (or you should at least make them) promise that all regular maintenance on the car is included as a perk for signing the lease.  The things you would normally have to pay for yourself (oil changes; tire rotations) should be free.  If you’re comparing the lease with buying a new car from a dealer, these perks are probably a wash.  Because, if you’re buying a car, you should ask the dealer to throw in oil changes as well. 
    • “It’ll save you loads of cash”  This is probably the most debatable aspect of the lease transaction.  How much are you actually going to save?  We could wax nerdilly about the costs of the lease, interest rates, residual values, trade-in numbers, etc.  But the only way to compare how much it will cost you to buy the car vs. how much you’re going to pay to lease the car is to sit down at the dealership with paper and a pencil. (if the dealership tries to discourage this kind of exercise, by the way, get out.  You’re giving them your money after all)
    • “As long as the monthly payment is low enough, I’m good” Car salesmen are taught to zero in on what you “can afford” on a monthly basis and spin that number into every sentence.  If you are busy watching the monthly payment amount (so the thinking goes) you will miss the fees and costs that they are stuffing into the back end.  Tattoo the phrase: “What is the TOTAL amount I could possibly pay by the time it’s over?” onto your forehead. 

Editor’s note: so that your Mom doesn’t call us and complain: For goodness sakes, if you follow our tattoo advice, use Henna.  It’ll disappear in about a month and you won’t hear your Mother say “Don’t every hang out with that Consumer Courage fella anymore.”

    • “When the lease is over, just turn the vehicle in. It’s THAT simple!”  Simple it is.  The last month winds down, you drive the car to the dealership, park it in back, hand them the keys and.…voila! After you leave, somebody with a clipboard will go over the car with a fine-tooth comb to document every little scratch, stain and dent. Soon after, clipboard-guy will send you a letter that says:

“Thank you so much for leasing your car from us. We hope to have you back as a customer!* 




* Please see the attached explanation of damages with respect to the vehicle you turned in.  As per the lease agreement, you agreed to repair the vehicle or to pay for the cost of those repairs, when you turn the vehicle in.  Make arrangements to pay the balance due within 30 days or hellfire will rain upon your household.

    • Every lease says that the consumer has to pay for “normal wear & tear” on the car, while it’s in his possession. Cracked windows, stained carpet/upholstery, the dent in your fender that magically appeared when you went to that meeting from work, broken radio knobs, those tires that don’t look so worn and that icky stuff that keeps appearing on the steering wheel all are considered “wear & tear.”  The estimate of the cost to repair them will come out of the consumer’s pocket at some point. 
      • We say “estimate” because the lease doesn’t say the manufacturer has to actually fix those things. It just says that you have to pay for it.  “If they don’t have to fix the problems, what’s to stop the estimate from being way more than the actual cost?” Correct-a-mundo.  It’s easy to see how you could owe $3,000 for all those items that don’t bother you if you own the car.
    • Fees you don’t discuss when you sign the lease: Two fees are particularly nasty, the “over-mileage charge” and the “disposition (or lease turn-in) fee.” These puppies really hurt and may even cause you to give serious thought to just buying the car when the lease ends. (even if you don’t want the car, the thought of paying a few thousand dollars just to say good-bye might be too much to bear)
      • Mileage fee: every lease has a limit for how many miles you can drive. Go over that limit – pay a fee.  Twenty cents per mile might not seem like a lot on day 1. But, after a few vacations and some out of town meetings that extra 10,000 miles is really $2,000.00. 
      • Disposition fee: this is nothing more than one last chance to rail you. They’ll talk about the need for this because “there’s paperwork to be done and we have to get the car ready for sale.”  But, who’s kidding whom?  They’re car dealers! All they do is get cars ready for sale. In any case, add another $1,000.00 for this.
    • Not really a Myth, but….: here’s a question lease offers never really address. If you lease a car for two years and turn it in, right before getting another lease, when do you stop making car payments?

Try owning it. We like to drive our cars until they give up.  They’re not the flashiest vehicles in the traffic-jam, turn funny colors as they age, creek and moan and don’t smell anything like new cars. But, at some point you get to stop sending your money to somebody else.  Yes, you’ll pay to maintain an older car, but usually nothing approaching what a car payment is.  The smartest car advice we ever received? Change your oil every 5,000 miles. Hopefully, the only large numbers you see as you drive are the ones that tell you how many miles your car has.

Posted by: Mark Wiseman (who drove one car until it spun out on the highway in a snowstorm. After that, it sat in his backyard until the City complained)