 Car-lease ads sound too good
|
If you've been paying attention to the new car ads,
you've perhaps noticed many of the sales pitches now focus more
on low-payment leases than the cash-back, employee financing and
zero-percent interest offers that were in vogue last year.
Some leases seem quite enticing -- the new Dodge Caliber
for $229 a month, a 2007 Mercedes-Benz C280 4Matic for $389 a month,
even a new 4.2-liter Jaguar S-Type -- a $50K-plus car -- for $649
a month.
But if you're tempted to take on one of these leases,
beware that you may be dooming yourself to financial pain at the
end.
The reason: These leases and others currently being
offered by other manufacturers are based on driving no more than
10,500 miles a year -- just 10,000 in the case of the Benz, according
to data on Edmunds.com.
Drive more than the allotted amount and you're liable for as much
as 18 cents per mile for the overage.
Since the average vehicle in the
United States is driven about 15,000 miles a year, someone who chooses a low-mileage
lease can wind up owing $900 or more when the lease ends.
Even the industry standard lease allows only 12,000
miles a year, which begs the question of why, given the average
American's driving habits, aren't leases based on 15,000 miles per
year?
The answer is complex and not designed to benefit
consumers.
First, the leasing company wants to get back a vehicle
that is pristine and will quickly bring top dollar at the wholesale
level. A three-year-old car with just 30,000 miles on the odometer
is, to use an old car sales term, a cream puff. The same car with
45,000 miles is just another used car.
Then, perhaps more insidiously, the leasing company may
be banking on collecting additional fees at the end of the lease, knowing full
well that when it puts a consumer in a car with a 10,000-mile annual limit there's
a strong likelihood that penalty charges will accrue. Last,
there's big business in refinancing leased cars at the end of the agreement, when
the consumer realizes that he or she is facing significant penalty charges and
opts to take out a conventional loan to buy the vehicle for the residual price.
On a vehicle I leased from Bank of America, I was routinely
sent letters at the end of the lease offering to convert the lease into a new,
four-year conventional loan. Had I taken the offer, I would have been saddled
essentially with a seven-year loan on a vehicle that I initially expected to drive
for just three years.
So now more than ever it's important for car shoppers
to look closely at the terms of new car leases, make honest assessments
about their driving habits and to try to negotiate more reasonable
mileage limits, even if that drives up the monthly payment.
 |
| This week's reader questions: |
|
| |
If
you have a question for Terry, e-mail him at Driving
for Dollars. | 
