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Although leasing a car is a very common event today, it doesn't make it any less complicated. Car companies with their highly paid lawyers have created lease contracts with hidden charges buried in very tiny print that can cost a naïve customer thousands of additional dollars. The low down and monthly payments may look like a great deal now, but if you don't read the lease contract carefully and ask the right questions, you may end up paying a much higher amount than the car's actual purchase price (so much for the bargain). So look before you lease for these hidden charges:
- Early Termination Charges
- Disposition Fee
- Excess Mileage or Use Charges
- Wear and Tear Charges
Early Termination Charges – During the lease term you may find yourself in a situation where you will want or need to terminate the lease, such as: you want a different car, the car was stolen or totaled in an accident. Make sure your lease contract does not prohibit early termination. Then ask the salesperson to compute the amount of money you will owe if you terminate the lease after making 50% of the lease payments. Review the calculation for any additional miscellaneous fees or monthly payments that are required if you terminate the lease early. Find out how they will determine the value of the car at early termination. Can you contest that value by requesting an independent appraiser? Look for leases that use the actuarial method of computing the rebate on unearned lease charges. This method is the most reasonable way of computing liability for future payments. Watch out for other methods such as the net present value, the sum of the digits or the rule of 78ths method. These computations may cost you much more.
Disposition Fee – At the end of the lease period, you have a choice between returning the vehicle or buying it. Find out how much you will be charged for returning the car. If you plan to return the car, consider this extra cost into your total lease expenses.
Excess Mileage or Use Charges – Beware of vehicles with low annual mileage limits because this can be a very expensive penalty. Carefully evaluate your driving habits to determine a realistic annual mileage limitation. Are you planning to change jobs during the lease term? Are you adding new clients or customers to your sales territory? Are you planning to move to a different location further away from work? Are you planning a long driving trip? All these factors can affect your annual mileage. Ask how much you will be charged for each excess mile.
Wear and Tear Charges – Did you sign a lease contract that requires you to turn in a vehicle in tip-top shape? Before you sign the contract make sure you are extremely clear on the required maintenance schedule and the expected condition of the car at the end of the lease term. Keep good maintenance records and obtain a clear understanding of the procedures you can follow to contest the car company's claims, such as the right to an independent appraisal or arbitration.
Before you sign any lease agreement make sure you fully understand the additional charges so your dream car doesn't turn into a nightmare.
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