Automobile leases increasingly require consumers' scrutiny, comparisons


NEW YORK -- A certain stench has surrounded the popular business of auto leasing. People like the idea; one out of every four new cars is now driven on a lease. But because a lease is complicated, unscrupulous salespeople can rip you off.

Starting this month, you'll have a new tool for fighting back. Twenty major lessors have voluntarily agreed to disclose, on their contracts, the so-called "capitalized cost" of the car you plan to lease. Some are starting now; others are dragging their feet because of dealer opposition. If you don't find the following disclosures on your lease, ask for them. Be suspicious of a salesperson who resists.

In leasing, the capitalized cost is roughly the same as the purchase price of a car you buy. It includes the cost of the car itself plus any extras you select or the salesperson tacks on.

Some lessors and dealers disclose capitalized cost, but others find it more profitable not to.

In California, Wells Fargo and the Bank of America removed the capitalized cost from their primary leases after losing business to competitors that kept customers in the dark. Those banks now are putting it back.

When you don't know your car's capitalized cost, the dealer can base your monthly payments on a much higher price than you thought you were paying.

For example, say you're leasing a $20,000 car and giving the dealer a $5,000 trade-in. The lease's net starting cost should be only $15,000. But if that base cost is not disclosed, the dealer could pocket some or all of your trade-in and base your monthly payments on the full $20,000 price. You'll never discover the deception because all you know is that you're supposed to pay, say, $250 a month.

The 20 lessors who have agreed to disclose the capitalized cost represent around 75 percent of the industry.

Here's how to use the new information, according to Ronald Loshin, president of Bank Lease Consultants in San Leandro, Calif.:

(1) Start by asking the salesperson how much the car costs. If he gives you the list price, start negotiating it down -- just as if you were going to buy. The salesperson may say, "the price doesn't matter on a lease, all that matters is the monthly payment." But that's not true. Your payment is based on the car's underlying price.

(2) Agree on what else you're going to pay. Will you buy a maintenance contract? Life or disability insurance? Are there any fees? All these upfront expenses, plus the cost of the car, add up to your capitalized cost.

(3) Check to see that the salesperson subtracts your down payment, the value of your trade-in and any rebates from your capitalized costs. That gives you the net capitalized cost, which also should be shown in the contract. That's roughly the same as the amount you would have to finance if you bought the car.

(4) Look at the monthly payment and compare it with leasing the same car through another dealer. If you intend to turn in the car at the end of the term and lease again, the lower monthly payment is the better deal.

(5) Look at the "purchase option," which is the price you can buy the car for at the end of the lease. If that's your intent, you'll want to combine an acceptable capitalized cost with low monthly payments and the lowest possible purchase price.

(6) Check the early termination clause. If you cancel the lease early, you'll have to pay the remaining capitalized cost (equivalent to the remaining principal on a car loan) plus early termination charges. Typical charges are zero to $500. Some leases are opaque on this point, and the charge might be higher than $500. A new law in New York, which takes effect Aug. 30, requires that the dollar cost be disclosed. Obviously, zero is best.

(7) Check how many miles you're allowed to drive each year without incurring excess-mileage charges. Typically, it's 15,000 with a charge of 10 to 25 cents for every mile over. Some cheapie leases set limits of 10,000 miles or less. That's fine for people who don't drive a lot. But it's a rip-off if you thought you were getting a bargain lease and then got socked with huge excess-mileage charges at the end.

(8) Ignore a dealer who tells you that the lease carries an especially low interest rate. Interest rates can be manipulated to look artificially low. Instead, concentrate on the lease's other terms and choose what looks like the best buy.

You can write to Jane Bryant Quinn at: Newsweek, 444 Madison Ave., 18th floor, New York, N.Y. 10022.

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