Here we look at some of these common scams and how to avoid them

Artificially low interest rates:

Some dealers quote a lower interest rate when in reality it’s much higher. They do this by either purposefully quoting the money factor as the interest rate or calculating the loan without amortizing some closing fees, like the security deposit, into the loan lease. Take the money factor for example: this is typically expressed as a four decimal digit, something like 0.004. Some dealers quote this as a 4% interest rate when in fact you need to multiply it by 24 to get a rough idea of the interest rate on your loan. In this example, the interest rate is a much higher 9.6% than the “quoted” rate of 4%. Make sure you crunch the numbers and understand the formula they use to calculate their interest rate. Look out for any fees not factored into the calculation. If you are not satisfied, do not enter into the lease agreement.

Terminate your lease early for a low penalty

This is an all-time leasing scam. You ask your dealer how much you will pay if you want to terminate your lease and he tells you: “You want to get out early? Sure thing, you only pay an early termination fee of $300”. What he is quoting is only the small administrative penalty of early termination, there is a much stiffer penalty called early termination fee and this runs into thousands of dollars.

Do not confuse the early termination administrative penalty with the termination fee. Read the small print carefully and know exactly how much you will get charged should you terminate your lease before its scheduled end.

Pay for an extended warranty you don’t need

This is another shell game to inflate the dealer’s profit at your expense.

The dealer slides an extended-warranty into the deal whilst it’s already factored into the monthly payments, or he tricks you into buying a 36-month warranty on a 24-month lease.

You do not have to pay extra money for a warranty already built into your payments or for one that goes well beyond your lease term. They might slip an extended warranty in. Don’t be fooled, the warranty is already factored in.

No security deposit

Any dealer who advertises a $0 security deposit is not telling you the whole story. A security deposit is always factored in the lease under the provision for disposition fees.

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A conventional dealer has a captive finance source, which can be the car manufacturer’s financial company, such as BMW Financial Services, Honda Motor Credit or General Motors Acceptance Corporation (GMAC), or a major national bank such as Chase Manhattan.

Independent lease companies are no financial obligation to any single one manufacturer financing source, but work with dealers anywhere in the country.

So which one is better?

Conventional dealers provide better lease-deals on limited-time promotions.

Factory-subsidized cars that have subvented money factors and residuals are

very attractive lease deals and can be very hard to beat anywhere else.

Independent lease companies can offer you unbiased and professional advice

on vehicle selection regardless of make and model. This is because they are not tied to a single manufacturer or financing source, unlike conventional

dealers who have to sell specific models. They can also be more flexible regarding negotiating lease terms like residual value and mileage.

Ultimately, if you prefer a more personal and customer-oriented relationship with your leasing agent, then you will do well with an independent leasing company.

Beginning in 2006, businesses and taxpayers who lease, or purchase, an  environmentally-friendly and fuel-efficient vehicle will be eligible to  claim federal income tax credits worth thousands of dollars. Individual  states also offer generous incentives, including hybrid state tax credits,  new High-Occupancy Vehicle (HOV) lanes access and discounted thruway tolls for alternative-fuelled vehicles.

And that’s not all you can save from going green! You can now save on your  parking fees at a number of universities and some auto-insurance companies are offering insurance discounts for hybrid-vehicle owners nationwide.

If you want to take advantage of these incentives and contribute to energy  conservation then visit HybridCenter.org and complete a personal profile about your driving needs and habits. You will get in-depth advice on hybrid models that would make economic sense to you and local, state and federal  incentives available where you live.

Disposition fee: leasing companies charge you if you choose not to buy the vehicle at the end of your lease. This fee is set as compensation for the expenses of selling, or otherwise disposing of the vehicle. It typically includes administrative charges; the dealer’s cost to prepare the car for resale and any other penalties. Make sure this fee is stated clearly in the  contract and is agreeable by you before signing on the dotted line. At lease-end, you are left in no position to negotiate as the dealer can apply your refundable security deposit towards this fee.

Excess mileage charges: Almost all leasing companies will charge a premium  for each mile over the agreed upon mileage stated in your contract. This penalty can be as high as 25 cents per mile and can add up quickly. To avoid the risk of running thousands of dollars in excess mileage penalties at the end of your lease, always check the “per mile” charges in your contract and be realistic about your mileage before you sign any contract.

If you think the limit is unrealistic given your commutation needs, then  negotiate with the dealer to get a higher mileage or contract for  additional miles.

Excess tear-and-wear charges: Another potential cost at the end of the lease is any incidental damage done to the car during the lease. This is deemed any excessive damage done to the normal tear and wear of the vehicle. Notice the use of the terms “deemed”, “excessive” and “normal”. There is no standard formula to define what’s “excessive” and “normal” and it’s up to the leasing company to assess – or deem – the damage and determine what they are going to charge. This leaves you at the mercy of unscrupulous

leasing agents who set stringent tear-and-wear standards. Make sure you read the description of these standards, understand them and agree to them. If your leased vehicle is damaged prior to the end of the lease, you may find it cheaper to repair the damage yourself than pay the excessive charges of the leasing agent. In the event of a dispute over the charges at the end of your lease, get an independent third party to do a professional appraisal detailing the amount required to repair any damaged parts or the amount by which tear-and-wear reduces the value of the vehicle.

Maybe you can’t afford the sky-high payments on that silky Jaguar JX V6 model anymore or you’ve just had a baby and you need a larger and more  spacious vehicle?

Unfortunately getting out of a lease is not as easy as getting in! A  leasing contract is difficult and expensive to terminate early. Simply  turning in the keys and walking away from a lease can result in stiff  penalties. You credit could be ruined and you could even get sued for  breach of contract.

It’s not all doom and gloom though. Actually, there is a number of options available to you. You can sell the car yourself and pay off the bank. This can be cost effective if the market value of the car is close to the buy-out number.

Do not hesitate to exercise this option even at a loss if it happens to be lower than the termination fee.

Your best option, though, is to transfer your lease for someone who would “assume it” and take it off your hands. There is a whole set of potential  buyers looking for short-term leases without all the hassle and extra  costs. Check with family and friends or use the services of lease-assumption websites, like swapalease.com, to list your car. Make sure you  check the credit worthiness of the new lessee and provide the car in good condition.

Benefit Number 1: Keeping up with the latest trends Leasing is sometimes more of a personal and lifestyle choice than a  financial one. Many people are not comfortable with the idea of owning a  vehicle over a long period of time. They’d rather keep up with the latest trends of the industry and drive the latest models every two to three  years.

Leasing a car gives you the convenience of having the latest technology and safety innovation, such as an electronic stability system, DVD entertainment systems and advanced stereo equipment. If you are willing to forego ownership for the latest set of wheels, than leasing is your best option.

Benefit Number 2: Purchasing Flexibility

Leasing also offers purchasing flexibility: it allows you to defer the purchasing decision while using the car. You don’t have to haggle with your mechanic over repair expenses, deal with hefty maintenance bills or worry about a depreciating asset. Provided you can keep the vehicle in good condition and stay within the contracted mileage allowance, you’re effectively getting a test drive for the length of your lease. At the end of your lease, you can purchase the vehicle or simply turn in the keys and walk away. No questions asked.

Benefit Number 3: Cash Flow

Leasing offers many short-term benefits. It reduces your initial cash outlay as you do not have to pay the large down payment required for car ownership. You only pay for the depreciation on the car – only the part you will use during your lease, not the entire vehicle. This results in lower monthly payments and frees even more cash. This cash can be put to use more intelligently elsewhere than the questionable investment of owning adepreciating asset. If you are self-employed or use your car for your job,  then you can write off your leasing payment as a business expense.

Benefit Number 4: Negotiating Leverage

Although it may seem a little unorthodox in this industry, almost  everything about leasing is negotiable. If you know all the fees involved,  you can lower your monthly payments, negotiate the purchase price of the  vehicle at the end of the lease and contract additional miles on top of  your mileage limit. You can also do some shopping around and compare deals  from different auto-insurers to get the cheapest GAP insurance for your  lease.

At the beginning of the lease, you have to pay a refundable security deposit, typically equivalent to one monthly payment, to safeguard against non-payment and any incidental damage done to the car at the end of the lease. You are also required to pay an administrative charge, called acquisition fee. Other fees include licenses, registration, title and any state or local taxes.

During your lease, and you expected to honour your monthly payment obligations. Any failure to do so will result in late-payment charges.

You have to pay any traffic tickets, emission and safety inspections and ongoing maintenance costs.  Ending your lease early will result in substantial early termination charges.

At the end of the lease, expect to pay any excess mileage costs, charged at 10 to 20 p a mile. Any incidental damage done to the car, and deemed to be above normal, will result in excess tear-and-wear charges. Finally, if you choose not to purchase the vehicle, then you have to pay a disposition fee.

When you lease, the vehicle that you will drive belongs to the leasing company. They want to make sure that their investment is covered in the  event the vehicle gets damaged, totalled or stolen. They typically want  to get covered for the difference between what your auto-insurer pays and  your outstanding leasing obligations at the time of the accident or  damage. This is called GAP, short for Guaranteed Auto Protection, and is usually included in the leasing contract.

If your leasing company is called BMW Financial Services, Chrysler  Financial or any other finance division of an automaker, then chances are your GAP insurance will be offered by the same lease company.

You are under no obligation to accept GAP insurance included as part of  your lease agreement. Why pay an insurance premium if you could get the  same coverage for a lower price?

Invest some time shopping by comparing quotes from other insurance  companies, including your existing one. Ask for discounts that you already  qualify for and adjust your coverage accordingly.

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