Hey Cool Car Fans,
I recently had a visit from someone trying to sell me some advertising for my car dealership and they shared with me the great deal that they got on their leased vehicle. I was curious so I asked them to send me a copy of their lease agreement to look it over. I’ll share with you how “great of a lease” it really was in this article to give you an idea of how wrong a lease can go and trap the owner for quite a while.
When she leased her new vehicle it had an MSRP of just over $42,300. After a full year of making payments of $685 a month, plus sales tax her buyout on the vehicle was actually over the original MSRP of the vehicle. Which means that of the $8,220 that she had paid to the leasing company over the course of a year none of it had reduced the purchase price of the vehicle. The interest payments on the lease actually increased the cost of the vehicle if she wanted to buy it out. It gets better though because it wasn’t even a 36 month lease, but a 48 month lease, so she still had three more years left.
How could she owe more than the vehicle MSRP on a lease? As I read the lease agreement I discovered that she had rolled negative equity into the lease of $3,600, so along with the document fee of $599 and a lease acquisition fee of $675 and a $599 maintenance agreement the end result was a capitalization cost of $47,780. Which when you start adding the monthly payments for a year it explains why the current buyout was actually more than the MSRP.
What was a bit tragic is the dealer she went to didn’t give her enough money for her trade, so she had negative equity that should have been far less or not at all. To top everything off, they only gave her 10,000 miles a year and based on how she was driving for her work the cost at $.20 a mile would be $4,000 at the end of the lease term to give it back to the leasing company. Her only option was to give back the vehicle to the leasing company at the end of the lease term.
IT CAN BE DIFFICULT TO GET OUT OF A BAD LEASE ON THE WRONG VEHICLE
I won’t be disclosing the vehicle in this article because that’s not as important as the lease structure and overall situation this person found herself in with what she thought was a great lease. The current buyout on her vehicle was over $43,000, but I could purchase the same vehicle at the dealer auctions for around $28,500 and it had a retail value of about $32,000. So, if we bought out her lease it would be a hefty loss. Much more than just riding it out until the end of the lease term and writing a check for $4,000 for going over the miles. The reality is that this was just a really bad lease.
In a few years, she might be able to get out of the lease depending on if the market changes for the vehicle she leased. The reality is that over four years of making payments of $685 a month, plus her sales tax, she would have been far better off to have purchased it instead of leasing. My guess is that the Manager she worked with didn’t explain to her the difference and look out for her best interest, but in the end she made the decision.
In this case she would have been far better off purchasing or financing this vehicle new or used. If she would have contacted me first I would have suggested we find her a slightly used one based on the depreciation, trade her other vehicle in for the tax savings and be in a far better position. Even had she purchased it new and financed it she would be in a better position than her lease, but this is definitely a vehicle that didn’t lease well and she should have bought it used.
Auto Consultant – John Boyd: The Cool Car Guy
John is an auto consultant who owns CoolCarGuy.com, a licensed car dealership in Lone Tree, CO. He can help you save time and money on any make or model, new or used, lease or purchase – nationwide. Call or email John about your next vehicle! firstname.lastname@example.org Twitter @coolcarguy