Automobile Leasing Basics

Aug 08, 2016

We all know that automobile dealers want to sell cars. But did you know that if a customer leases an automobile, the end result is the dealership sells the car. In a lease deal, the car gets sold to some financial institution that in turn is going to finance the lease. Generally customers are savvy enough to know how to negotiate the price of a car. There are plenty of services online that can provide the true value of an automobile. A lease however gives automobile dealers the opportunity to introduce multiple variables into the equation. How many miles a year are you allowed to drive before you have to pay for excess mileage? What is the residual value of the car at the end of the lease term? What is the value of the car that is being leased? What interest rate is being used? All of these numbers can vary and can change the outcome of the monthly lease payment. It is not uncommon for a dealership to be involved in hours-long negotiations in the showroom over the purchase amount and the associated monthly payments on the purchase. After an impasse is reached, many hours later, the dealership introduces a lease with numbers that are favorable to what the customer was seeking in terms of the monthly payment. If the customer is only focused on the monthly payment amount, the lease suddenly looks attractive. Buried in that formula however is the value of the vehicle. We often see leases where the number used by the dealership for the value of the vehicle is a number higher than what the customer could have purchased the vehicle for outright at the time. For example, the vehicle has a window sticker price of $24,000. The vehicle can be purchased for $21,500. The car ultimately ends up being leased and  the value of the vehicle is listed at $26,000. The customer may be happy with the payment numbers but the dealership is really happy because they just sold a car for $2,000 more than the sticker price and $4,500 more than what they would’ve sold it for to someone who came in to just buy the vehicle. The agreed upon value of the car in the lease agreement is the amount the dealership gets paid for selling the car to the finance company who in turn is going to accept payments over time from the customer. The bonus to the dealership is then at the end of the lease term the customer will return a car to them that they get to sell (again) and they have the customer back in the showroom in need of another vehicle. The attorneys at Willis & Willis have reviewed many auto leases. We would be happy to take a look at your lease for you prior to your signing it to help you understand the lease.

 

 

 

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Akron, OH 44303

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