Pt. 2 – Car Lease Contract: 7 Important Facts
1) A lease contract amount doesn’t change, even after an accident. If the consumer gets into a car accident and the vehicle is totaled, the consumer is responsible for the full lease contract amount. If the consumer put zero down, they often find that the insurance settlement is not enough to cover the payoff amount.
2) There are limits on time and distance. When the lease is initiated, the time and mileage terms are defined. Generally, a lease is 36 months and 36,000 miles. 12,000 miles a year is not a lot, and there is usually a penalty of $0.25 per mile over the aggregated mileage limit. They never offer a credit if the turn-in mileage is less
3) If the leasee experiences financial hardships and cannot afford the payments, the dealership will recover the car and sell it on their own terms, which could be an auto auction. If it’s sold for less than what is owed, most likely, the consumer is legally responsible to pay the difference.
4) The consumer is not the owner, but is responsible for all repairs and maintenance that is not covered by the factory warranty. No consideration is made when the vehicle is turned in as to what the consumer’s ‘out of pocket’ expenses may have been. Consumers are responsible for wear on components as well, when the vehicle is returned and assessed.
5) The vehicle cannot be claimed as an asset.
6) Lifelong car payments! If the consumer leases a vehicle, and at the end of the lease returns the vehicle, and leases another – and this continues for as long as transportation is required, the leasee basically never pays off the loan, nor owns a car. If the payment is $350.00 per month and instead the leasee puts that $350 per month into a mutual fund for 30 years, assuming the fund paid 10%, after 30 years it would be worth $791,171.00. That’s a lot of cars.
7) It’s generally more expensive to purchase a car after a lease than if it was purchased outright. Beware of the lease payment per month promotion. Although it sounds good at the time of the lease, often consumers do not look at the price of the vehicle on the lease; sometimes the dealer lists the car value at close to sticker invoice. The result is a higher purchase price of the automobile when purchased after the lease. Additionally, the dealer may add a disposition fee which is a handling fee for when you turn the car in, or add a purchase-option fee should you decide to buy it.