Leasing Scams to Avoid
Unfortunately, sometimes dealerships and salespeople will take advantage of the complicated process of new car leasing to get you to agree to costs that you may not necessarily need to pay. Terms like “residual value" and “cap cost reduction" can be confusing, and make it nearly impossible to determine if you're actually getting the good deal you think you are.
Before you head to the dealership, be aware of some common practices that are designed to have you spending more and saving less.
The Price Hike
How It Happens:
The salesman takes advantage of you not knowing how monthly payments are calculated. He or she will let you negotiate the price and agree on a monthly payment. After the paperwork is written up, the monthly payment you agreed on is different than the amount in the contract.
How to Avoid It:
Read the contract carefully. After you negotiate a price, get these numbers from the dealer:
- The residual value.
- Refers to how much the leased car will be worth at the end of the lease.
- Monthly payments are calculated by the amount of depreciation of the vehicle.
- The money factor.
- This is the amount you have to pay in finance charges for each month of your lease.
- Similar though not quite the same as the interest rate on a loan.
- Taxes.
- Down payment.
- Rebates or incentives.
After you've got the necessary information, you can use an online lease payment calculator to help you determine exactly how much your monthly payments should be. If the numbers don't match, make the dealer explain their math before you sign the contract.
Missing Trade-in or Rebate
How It Happens:
You trade in a used car and use its value for a down payment to decrease your monthly costs. After writing up the contract, the dealership either:
- Leaves the value of your trade-in off the contract, increasing your monthly payments.
- Includes unknown fees that equal the cost of your trade-in or rebate.
How to Avoid It:
Before you sign the contract, make sure they've included any rebates or trade-in value. If you see that fees have been added that haven't been discussed, ask for an explanation. If the explanation seems like a scam, it probably is.
Raising the Sticker Price
How It Happens:
The dealership raises the sticker price of a vehicle above market value to increase your monthly payments. If you question it, the salesman may make you believe that the sticker price is irrelevant, because you aren't purchasing the car anyway.
How to Avoid It:
Make sure you research the market value for any vehicle you are considering. If you can, get several lease quotes from several different dealerships. A fair sticker price will ensure you don't get tricked into high monthly payments.
Adding Nonexistent Options
How It Happens:
The dealership includes extras on the contract that will increase the value of the car, such as:
- Suspension upgrades.
- High-end stereo options.
- A nicer interior package.
- Performance upgrades.
The deceit occurs by not actually including any of the options in the car you receive. This tactic is often used to:
- Increase your monthly payments.
- Charge you for missing components when you return the car at the end of the lease.
How to Avoid It:
Compare the sticker price of the vehicle with other leased car quotes from other dealerships. If the price is significantly higher, try to figure out what is included in the difference. If you don't want the options, tell the salesman you want a different car without them. If you want the extra options, make sure they're included in the vehicle before you sign the contract.
The Extended Warranty
How It Happens:
The dealership or salesman offers an extended service contract (commonly referred to as an extended warranty) for your new car lease, promising to provide extra coverage for repairs and damages. If you agree to the warranty, you might end up paying for coverage you don't need.
How to Avoid It:
While an extended warranty can be a good idea when purchasing a new or used car, it doesn't make sense for most leased vehicles. This is because new cars are covered under the manufacturer's warranty, which should provide coverage for the duration of the lease. An extended service contract only kicks in once the manufacturer's warranty has expired.
A good rule of thumb when leasing a new car is to never sign a contract in which the lease is longer than the manufacturer's warranty. If you find that you need a longer lease contract, read our guide to Long-Term Leasing for considerations on warranties and mileage overages.
Inaccurate Credit Score
How It Happens:
The dealership or salesman checks your credit and determines your credit score to be too low to qualify for:
- Special incentives.
- Rebates.
- Low-interest rates.
The deceit occurs when your credit score is falsely reported.
How to Avoid It:
Whether you're in the market to purchase or lease a car, it's always a good idea to check your credit score and bring a copy with you to the dealership. This will prevent multiple credit checks (if you plan to go to more than one dealership), which can negatively impact your credit score, and also keep the dealership from reporting a false score.
Assuming an Old Lease
How It Happens:
Sometimes a buyer who's unhappy with his or or her current lease goes to a dealership for a newer vehicle. The dealer or salesman takes this opportunity to start a new lease by promising to accept your old lease as a trade-in.
How to Avoid It:
Here's what you can expect to happen in most cases when the dealership accepts your leased car trade-in:
- The dealership returns the car to the original dealership and makes the remaining payments, but not the early-termination fees or any other lease penalties associated with excessive wear and tear or mileage.
- Sometimes the dealership will add these fees onto your new lease contract, which you will pay with interest.
- The dealership does not return the car to the dealership and adds your remaining payments onto your new lease.
Any time you decide to end a lease, it's going to come with a penalty. In order to avoid paying portions of two leases, it's best to wait to purchase or lease another new car until your old lease is up.
Contract Errors
How It Happens:
After you sign a lease contract, you'll get a call from the dealership stating that there's been a mistake. The “mistake" will often lead to a higher monthly payment that you've originally agreed upon.
How to Avoid It:
After you've signed the contract, it is a legally binding agreement. Both sides must hold up to their end of the bargain. You as the buyer are not required to renegotiate payments or give in to new demands, such as a higher interest rate or a longer lease.
In this situation, it is best to not sign any additional paperwork and consult with an attorney. For more information, please refer to our Car Lease Contracts page.
