A Houston caller last week started our call saying he wanted to lease a new F-150 and was going with a famous third party lease company, not affiliated with a dealership. I sort of jumped on him, then apologized, explaining to him that this was not a good idea.
Third-Party Lease Companies
I enjoy pointing out car dealer ads to my radio listeners
that I find false or offensive. For one thing, people seem to enjoy the education, and it gives me satisfaction to think that maybe I can dissuade someone from doing business with a dealership that practices deception.
There are a lot of independent or third-party lease companies in every market that advertise. I am not a fan of these operations and never have been-they add another layer of profit to the consumer that I find needless. I field a lot of questions about these companies, and the reason is their ads make it sound so appealing. People who listen to my show often hear me say that if it sounds too good to be true, it probably is.
For instance, some lease companies promote a “guaranteed trade-in value at the end of the lease.” While technically this is true, every lease has a residual value, which is a guaranteed amount as long as you stay within the obligations of the lease. It sounds great, but the reality is you get this with every lease.
Lower Payment Claims
The big claim with lease companies is that payments are “40% to 50% lower than buying”. In most cases, this is a true statement, but again this is the essence of a lease, to begin with. Leases are calculated by taking the sale price of a car, then deducting the residual value amount. Of course, the payment will be lower, but you also will not own the car. At best you will have some equity, in most cases, you will not. It is not fair to make a claim of lower payments without a true comparison to the overall cost of leasing versus buying.
Some lease companies throw payments out to the public that sound really good, but most people do not catch the “fine print”. It is usually a very long-term lease, with very short mileage limits per year. For me, the beauty part of a lease is going the shortest amount of time possible, which allows you to avoid the maintenance costs you incur as a vehicle ages. Three years is just about perfect to avoid any repairs or maintenance costs, you might even get away without buying a set of tires.
Crunch the Numbers
I saw an ad online recently from a third party lease company that looked great at first glance on a new BMW. It was a $35000 car, for just $469 per month with just $2000 out of pocket. That is a pretty attractive payment for a hot Beemer. A deep dive shows it to be a 60-month lease, so the total amount of the 60 payments is $28,140. You paid $2000 down, so now you’ve spent $30,140 on a $35,000 car. So what is the problem? Simply put, at the end of the lease you probably won’t have anything to show for the $30,000 you paid out. If you want to own the car at the end of the lease, you can buy it for $15,750. If you do buy the car, now you’ve spent almost $46,000 on a $35,000 car.
No Manufacturer Involvement
I want to point out, too, that no third-party leasing company can buy from an automobile manufacturer. They buy from local dealers, who make a profit selling the cars, then the lease company adds in another layer of profit. Just about all the manufacturers offer lease incentives and special interest rates to their dealers that lease companies cannot utilize.
In fairness, most lease companies offer some nice services, like coming to your home or office with your new car. Just know you are paying for those services every time you make a payment due to their markup. I just want you to know the facts.
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