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Buyer Beware When it Comes to Leasing . . . 
    Christine had gone to an automobile dealership over the weekend and had
given in to the 
pressures of the salesperson.  Now here she was on Monday morning wondering
just what 
she had gotten herself into.
    Christine just leased a new car and she had no idea how much she had
paid for it.  The 
salesperson told her that the vehicle stickered for $17,900.  He gave her a
discount of 
$1,000 and a manufacturer's rebate of $500.  She also put down $1,000 cash.
 The 
problem . . . she suspected that she actually financed more than $15,400 on
the lease, but 
she did not know for sure.  All that she knew was that the payment was $306
per month 
for 60 months.  She called her bank and asked a loan officer how much the
payments 
would be on a loan for $15,400 and 60 months.  The payment was $317 per
month.  With 
her suspicions confirmed, she had him calculate a 60 month lease.  The
payment came to 
$250 per month.
    Christine's lease contract was with a major national bank.  After she
called the bank, 
she determined that she actually financed $18,000 on the lease.  You are
probably asking, 
"How could this be?"  Well, it's not hard for a salesperson to deceive you
on a lease.  The 
only things disclosed on lease contracts are: the payment, the term, the
total of payments, 
extended warranties, credit insurance, and (in most cases) the residual
amount (the lease-
end buy out).
    Christine called the salesperson and asked how much she had financed. 
He told her 
$15,400.  She also noticed an extended warranty was listed on the lease
contract, but it 
did not indicate how much it cost.  She asked the salesperson about the
warranty and he 
said that the dealership provides the extra warranty for every vehicle. 
What she didn't 
know was that she actually paid for the extended warranty and that it was
optional.
    Christine wanted to know how she could get out of her lease contract. 
The only 
suggestion that the loan officer could make was for her to contact the
Better Business 
Bureau or the Attorney General's office, but there wasn't much that she
could do.  Once 
she signed the contract, she committed to the agreement.
    "Let the Buyer Beware!"  This seems to be the stance that some auto
dealers are taking 
when it comes to leasing.
    When most people consider buying a new or used car the first thing that
comes to mind 
is, "How much can we afford to pay each month?..." and this may be the only
point that 
they negotiate.  A good salesperson would love this type of person because
they can just 
sell them on the low monthly payment of a lease.  What the buyer does not
know is that 
they are paying the maximum amount that the dealer can charge for that
vehicle (or 
more).  Not all dealers do this, but sometimes greed motivates them.  If
the buyer never 
questions the lease, he or she may never know that they are paying more.
    Currently, the Federal Reserve Board (FRB) is proposing revisions of
Regulation M, 
which implements the Consumer Leasing Act.  The act requires lessors to
provide uniform 
cost and other disclosures about consumer lease transactions.  
    Until the Federal Reserve Board implements changes in Regulation M
(which has been 
2 or more years in the making), what can you do to protect yourself?
    Leasing expert Nick Dersonan, author of  "How to Negotiate the Purchase
of a New or 
Used Auto" ( $17 Write: Dersonan Co., PO Box 4322, Newark, Oh 43055) 
offers these 
suggestions:
-  Do not buy a vehicle on impulse.  Take your time.
-  Shop around.  Go to other dealers who have the same vehicle.
-  Stick with a dealer whom you trust, but still shop around just to keep
them honest.
-  Explore all of your financing alternatives.  Compare the leasing
programs of different 	
	banks or  credit unions.  Compare a lease to a finance contract.
-  Take the time to read your contract and ask questions about items that
are not clear 
	(consult with someone at the bank, not the dealership)
-  Most of all become educated about leasing . . .
WHAT IS A LEASE?
    A lease is another way of financing your vehicle.  Lease payments are
determined by 
what the market value (estimated) of the vehicle will be at the end of the
lease term.  The 
"estimated" or "residual" value, subtracted from the negotiated sales price
is the amount 
that you pay through monthly payments plus interest on the declining
balance and 
monthly interest on the residual value.
       For example, to lease a vehicle for two years on which you
negotiated the price to 
$15,000 with its residual value at the end of two years estimated at
$9,000; you pay interest 
on the $9,000 for two years.  On the additional $6000, you pay interest and
principal 
payments for two years.
 To simplify:
    Leasing is actually two loans.  One is on the residual value of the
vehicle.  The other is on 
the depreciation, or declining balance.  In the example below, the monthly
payment is 
figured by calculating the interest separately on each of these loans.
    You subtract the $9,000 from the $15,000 negotiated price and divide
the difference by 
24 months (the term) and you have $250-per month as the total monthly
depreciation.  For 
the interest, figure the average daily balance, which is $15,000 minus
$9,000, divided by 
two (number of years in the term).  Add the $9,000 residual value.  The
total is $12,000.  At 
10 percent annual interest, that is $1,200.00.  Divide by 12 for the
monthly interest rate.
    Add the interest ($100.00) and monthly depreciation ($250.00) for a
total payment of 
$350.00 per month for 24 months (In some states sales tax would apply to
this payment).
   Unfortunately there isn't an easy payment factor that you could use to
calculate your own 
lease payments.  This is because the residual value is different for every
vehicle and for 
every lease plan.
    Leasing offers you a reduced term and in some cases a lower payment. 
You only pay for 
the time that you use the vehicle. If you like to trade vehicles every two
or three years, then 
leasing might be for you.  One thing to remember is that every year the
price of a particular 
model of a vehicle will increase substantially.  You will have to pay more
per month every 
time you enter into a new lease agreement.
 
Remember . . . not every auto dealer is trying to deceive you.  There are
honest 
dealerships, but sometimes the owners do not know what the salespeople are
doing.  If a 
greed motivated salesperson realizes that you are not informed about
leasing or buying a 
vehicle, then he or she will take advantage of you.  

    To learn more about leasing and other dealer tricks pitfalls to avoid
when buying a vehicle; 
you can purchase a copy of Nick Dersonan's manual: "How to Negotiate the
Purchase of a New or 
Used Auto".  Nick has many years of experience in automobile sales.  He has
worked as a 
salesperson, finance and lease manager, and currently works for a major
national bank 
where he specializes in leasing..  Just send $15.00 (Plus $2 S & H) to:
Dersonan 
Company, PO Box 4322, Newark, Ohio 43055-4322

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