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A brand new lease on cars
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December 10, 1997: 5:55 p.m. ET
New rules that will take effect Jan.1 are designed to combat confusion
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NEW YORK (CNNfn) - Savvy car-shoppers know the dilemma all too well: to lease or to buy? Now the debate is getting a new twist thanks to some changes in federal law.
Two government agencies have launched a campaign to tell consumers they have a right to know a lot more about auto leasing than they currently do.
Currently, nearly one-third of all car and trucks driven off new car lots are leased. And new disclosure rules that will take effect on Jan.1 are designed to combat confusing claims that make it difficult to compare competing offers.
Federal Reserve Board governor Laurence Meyer said Tuesday at a news conference to highlight the new rules that agencies and dealers will be required to provide disclosure forms, so "consumers can compare lease offers and negotiate some terms." The Federal Reserve sets the rules for auto leasing and the Federal Trade Commission enforces them.
A new brochure, Keys to Vehicle Leasing, is also now available free of charge from the Federal Reserve Board's Publication Services (202-452-3244) or from any regional Federal Reserve bank. It is also available on the Fed's website.
But some consumer advocates say the new rules have only papered over the problems and will not lead to reduction in deceptive practices by dealers and auto financing companies. So consumers need to be as vigilant as ever when leasing a vehicle.
Leasing has a number of upsides: it usually requires less money down, smaller monthly payments, and allows drivers to change the make or model of their cars more frequently. Many choose to lease because it allows them to drive a car that otherwise would have been prohibitively expensive to buy.
The new rules, known as "Regulation M," are meant to better protect you deceived about how much you pay. Among the many facts the Federal Trade Commission want consumers to know about include the following:
- At the lease signing, the total amount of money due has to be put in writing, with each cost clearly specified.
- The conditions under which you can terminate the lease early must be laid out.
- If the manufacturer has a standard for what constitutes normal wear and tear on the car, it must be defined from the outset.
But merely enlarging the fine print may not be enough.
An number of consumer groups have long lambasted leasing because in many cases people have been taken. Some also claim that hiking up fees is a secret but widespread policy encouraged by many automakers-a charge the companies deny.
"The allegation that we are coming up with phony charges [related to leasing]... I know of absolutely no such instances," said Della DiPietro, a spokesperson with Ford Credit Co.
Even if the charges are above-board, financing companies can sock you with early termination fees, wear-and-tear charges, and excessive mileage costs. The cost of a lease also includes the difference between the capitalization cost -- what would be a sale price on a purchased car -- as well as financing charges.
If you don't want to face the seemingly petty charges, buying may be for you. It's also the route to take if you are looking to hold onto a vehicle for the long haul or want the freedom to change the paint of the car or add your own aftermarket modifications.
Whether you're buying or leasing, consumer advocates say, one trick is to stand firm on how much you want to spend and make sure the numbers are laid out in black and white.
One of the differences between buying and leasing is that law forces dealers to tell you the price of the car and the Annual Percentage Rate when you buy, but not when you lease, says one California consumer advocate.
Mark Eskeldson, author of What Car Dealers Don't Want You to Know, is critical of leasing. He says the new law still lets financing companies drain your pocketbook, and leasing is the better alternative only for the rare car-shopper who has more money than time to spend.
The decision to lease our buy should be based on a careful review of your individual needs. In general, buying is the better alternative if:
- You tend to drive a vehicle for six years or more.
- You have enough money to pay a 10 percent down payment.
- If you see a vehicle as an investment.
Leasing is for you if:
- You see a vehicle as depreciating asset.
- You want smaller down payments and lower monthly charges without owning.
- You want to drive your car 4 years or less.
- You drive less than 15,000 miles per year.
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