Probably one of the most misunderstood options in the automobile business is leasing.
Leasing is not for everyone, but there are people that are prime candidates but don’t have enough knowledge or have been a victim of misinformation.
We have done a poor job in general of explaining leasing to customers.
A lot of the misunderstanding comes from things that happened years back and resulted in government intervention to prevent future abuses.
Presently, there is only one type of lease available to a customer. It is a closed end lease. That means all the details are worked out for the period of the lease as well as at the end of the lease. Everything is already been closed, and nothing is said to be open.
The abuse came with a lease called an open end lease. An unscrupulous dealer would set the value of the vehicle at the end of a lease artificially high. When the customer turned the car back in, he would tell them the market had changed, and it was not worth as much as they had estimated it to be. The customer would have to make up the difference. The primary factor in figuring a lease is the value of the vehicle at the end of the lease. The price of the car minus the lease end value is the amount of depreciation. The lower the amount of depreciation, the lower the payment is. Everyone wants a low payment!! So if you went to an honest dealer and he quoted you what the car should actually be worth and the unscrupulous dealer artificially inflated that figure, the unscrupulous dealer’s payment would be a lot lower even at the same interest rates as there would be less depreciation. The only lease available from dealers today is a closed end lease.
Another common problem has been what kind of condition the car is in when it is turned in.
A customer would return a car and think it was in great condition only to have the leasing company look at it and determine that there was a lot of damage that the customer would have to pay for.
A lot of times this was probably due to a lease where the leasing company inflated the value of the vehicle at lease end and was trying to make up for their losses by charging the customer for any possible damages.
Honda now has a policy of forgiving up to $1500 in damages to the vehicle.
We usually tell our customers that the car they are turning back in should look like a three year old car with the mileage agreed to, and not like a 5 yr old car or a 3 yr old car with high mileage. On the other hand, it does not need to look like a new vehicle either.
These are the primary misunderstandings that customers have.
If you have any questions, please let me know by emailing me at larrydavis@mosesautonet.com and I will be glad to address them for you.
Our next blog will get down to some reasons that make sense for a customer to lease a car instead of buying one.
Until next time, have a Honda good day.
Larry
