Sure, the auto industry is coming up with user-friendly leasing contracts, but even a single page with columns of numbers can still look scary to the math-challenged.
So we asked Lee Weinman, vice president of Bert Weinman Ford, the oldest and largest dealership in Chicago, to walk us through a typical lease.
“It takes basic common sense to read a lease,” Weinman counsels. “And there are a couple bits of advice I would give to anyone. The first has nothing to do with reading the actual document, but it has everything to do with being happy. And that is, make sure you like the vehicle and have taken it for a test drive. If it doesn’t fit your needs, it’s not the best deal.
“Secondly, don’t sign anything until you’ve read it front and back, and every blank space on the contract is filled in by a number or `N/A’ for `not applicable.’ “
As an example, Weinman used a lease contract for a 1995 Taurus GL, a mid-level sedan with an average number of options.
Weinman was unable to use a ’96 model because, at the time of the interview, no pricing had been made available to dealers and no lease programs were set to begin until late September.
Weinman made even a neophyte understand what’s important to look for in a lease contract.
You don’t need an accounting degree or a calculator; just a pencil and paper and an awareness of what details are critical.
“When you’re checking to see if every blank is filled in, be sure to take a good look at the lines referring to rebates, cash down payments or trade-ins,” Weinman said. “Some dealers may not write them in and, therefore, the buyer doesn’t get credited for a down payment or a rebate.”
On the contract he used, the lessee was credited $2,000 for a cash down payment and $2,000 for a company-sponsored rebate.
A critical part of the contract is the first line, which refers to “capitalized cost”-in effect, what the consumer is paying for the car. In this case, the cost of the Taurus is $19,941 (including sales tax) for the suburbanite, and $20,127 for the Chicago resident.
Another critical line is the base monthly payment-$348.28 for the suburbanite; $356.84 for the Chicagoan. The lease also records the use tax payment of $21.41 for the city buyer.
In both leases, it’s of the utmost importance to note the lease term, or number of months you’ll be making payments. Dealers can pencil in amounts ranging from 24 to 60 months. It’s the buyer’s responsibility to check this number and make sure it coincides with the terms agreed upon. In this case, the lease runs for 24 months.
Though you can negotiate things such as the capitalized cost, other parts of the contract, such as the excess mileage charge, are non-negotiable with the Taurus. You must pay 11 cents a mile for each mile over 30,000 (or 15,000 per year). In the case of charges set by Ford Motor Credit, the dealer has no room to adjust it up or down.
The lease-end purchase price is important to note because it tells you the amount of money you need to come up with to buy the car when the lease expires. In this case, the buyer needs to pay $10,062.50. But, Weinman notes that 80 percent of his customers lease another new vehicle at the end of the contract.
“That way, they can drive a new car every two years without worrying about maintenance,” he said. “Also, you’re always under warranty when you do it that way.”
To buy the same Taurus, with a $2,000 rebate and $2,000, Weinman said a Chicago resident would finance $16,127 over 48 months at the average interest rate of 9.75 percent for total monthly payment of $407.09. For the suburban resident, $15,941 would be financed over 48 months at the average interest rate of 9.75 percent for a total monthly payment of $402.39. The totals reflect the difference in sales tax in the city and suburbs.
Most lease contracts offer the buyer the option to purchase life and disability insurance. Dealers profit from this and you have to decide if the extra insurance is worthwhile.
“If you’re living paycheck-to-paycheck or don’t have a disability plan at work or a nest egg, it may be a good thing,” Weinman said. “But the decision is up to you. If you’re starting to feel pressured by the salesperson (to buy things like insurance), leave the dealership.”
Like most leases, the back of the Ford lease looks a bit gray and uninviting to read, but force yourself to do it.
Pay special attention to the section covering “loss or destruction of the vehicle.” That will tell you what happens when the car is stolen or totaled. In the Ford contract, gap coverage-the difference between what you’ve paid and what you owe-is included so you are protected from a huge expense in case of theft or accident.
Also check to see whether the automaker or credit company has a “disposal fee” that goes into effect if you do not exercise your option to buy the vehicle at the end of the lease. If there is such a fee, it’s basically a hidden charge. There was no disposal fee on the Taurus lease.
“It can cost $500 or more extra, so you’ve got to pay attention to things like that when you sit down to sign the lease,” Weinman warns.
The indemnity sections of most leases generally say you are responsible for things such as parking and traffic tickets, though the lease vehicle is not in your name (in this case, the Taurus is in the name of Ford Motor Credit).
It’s also important to study the section of the contract that deals with voluntary early termination. This tells you what you’ll pay if you have to get out of the lease ahead of time.
In the case of the Taurus, the lessee would have to pay a $200 early termination fee plus the difference between the unpaid capitalized cost and the vehicle’s fair market wholesale value. If, for example, the unpaid capitalized cost amounted to $8,700 and the vehicle’s fair market wholesale value was $8,000, the lessee would have to pay a total of $900 ($700 plus the $200 termination fee).
