Leasing a Car
| Author | Jeffrey Wilson |
| Pages | 77-81 |
Page 77
Twenty-five percent of all new cars moved off dealers' lots are leased. The contract that defines this relationship between the consumers and the owner of these vehicles is complicated, subject to regulation, and often the site of misunderstanding and fraudulent activity. Leasing cars allows people to drive cars they believe they could not afford to buy. It appears to give people access to a better class of cars, while another party remains in charge of the car's mechanical problems. For many people, leasing a car feels like renting an apartment; it's a way to live without the responsibilities of personal ownership. For some people perhaps leasing is a good idea; it is certainly a good idea for the owners of leased vehicles who profit generally at a rate of about three times the list price of their vehicles.
A car lease is a contract between the party who owns the car (lessor) and the one who will use the car (leasee). A contract signed between these parties governs the terms, those conditions under which the car may be used and the obligation of each party. Consumers sign their lease agreements with automobile dealers. Shortly thereafter, the dealers sell the leased vehicles to a leasing company. The leasing company may be, in fact, the car dealer, or it may be a finance company subsidiary to a car manufacturer, or an independent leasing company. This leasing entity now owns the vehicles and is thus the lessor. Besides profiting from the sale of the car, the dealer enjoys financial incentives from the leasing company and manufacturer rebates.
The leasee acquires no equity in the vehicle. During the lease period, in fact, the leasee pays the leasing company for the car's depreciation, that is the difference between the list price of the car new and the value it has once it has been driven for the leased period. For this reason, consumers are better off leasing vehicles that hold their value.
The Consumer Leasing Act (CLA) covers car leases of at least four months in duration in which the total amount of money a leasee owes does not exceed $25,000 for a vehicle limited to personal use. In 1998, regulations governing this act, referred to as Regulation M, were established by the Federal Reserve Board. Regulation M can be found in the Code of Federal Regulations (CFR), Title 12, Part 213.4. The CFR is available in many law libraries and on the Internet. Leasing law specifies the disclosures which must be contained in the lease document. For exam-
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ple, dealers must reveal the monthly and total cost of the lease, additional fees, and potential mileage and early termination penalties. Enforcement of these disclosures is handled through the Federal Trade Commission.
The lease contains terms which the consumer may not know but which are important to understand since they determine the nature of the contract the consumer is signing. The following are the important terms to know.
Amortized Amounts: These consist of fees a lessor is required to collect, such as taxes and registration fees These expenses are paid off gradually as a part of each monthly payment. Expenses for insurance and maintenance, when provided by the dealer, are also amortized.
Base Monthly Payment: This depreciation amount is the value the vehicle is calculated to lose each month, plus the amortized amounts and the interest leasees pay in financing charges over the lease term, divided by the number of months the vehicle is leased.
Capitalized Cost: This is the total price of the car as agreed to by the lessor and the leasee over the life of the lease term, plus the registration fees, title fees, and taxes.
Capitalized Net Cost: This is the amount the leasee will have paid for the car after all payments have been made. This is the same figure as the adjusted capitalized cost as it takes into account any down payment made.
Depreciation plus Amortized...
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