Don't Get Fleeced by a Lease

While you're shopping for others this season, keep in mind that Christmas is also the best time to cut a deal on a car.

Traffic at dealerships slows to an idle, and the sales manager will likely loosen the bottom line to move a vehicle out the door.

But what about your bottom line on buying versus leasing?

New car prices averaging more than $20,000 mean automakers are pushing leases, which carry lower monthly payments than a purchase.

And, in fact, almost a third of new cars are leased, more than half of luxury cars.

But experts advise looking beyond the low monthly payment. A lease is usually more expensive than buying for two reasons:

* At the end of a lease period, you must either lease or buy another car, which means more monthly payments.

* Leases are so complex that car dealers often hide extra expenses.

Leasing makes sense for some, says Josh de la Cuesta, an analyst at Intellichoice, a California company that rates lease offers.

Those people generally drive no more than 15,000 miles a year, take good care of their cars, get a new car every few years, and want to make the smallest down payment possible.

Even if you fall into this category, leasing is only cheaper if you negotiate the best terms, says Mr. de la Cuesta.

That's what Wells Sampson discovered when he leased a new Ford Taurus in 1992. His advice: Go over the contract with a fine-toothed comb.

In his case, the dealer convinced him he would make one less payment than the finance company expected in the end. The extra payment was disguised as the security deposit Mr. Sampson thought he would get back but didn't.

Such hidden costs, especially at trade-in time, are the most common pitfall, says de la Cuesta. Among them: down payments, acquisition fees, disposition fees, excess mileage, wear and tear charges, and gap insurance.

The biggest problem with leasing, say consumer groups, is confusing terminology. Unscrupulous salespeople often hide what you're really paying, de la Cuesta says.

"They simplify it so much that you don't know what you're paying for," he says. "The salesperson just says, 'I can get you this car for this monthly payment.' "

But that monthly payment doesn't tell the whole story.

In response, federal regulators will require dealers, starting Jan. 1, to provide a disclosure form with key lease details.

But even that may not be enough, consumer advocates say.

The form doesn't have to be provided until the final stages of the contract, and it need not state the "money factor," essentially the lease's interest rate.

Intellichoice lumps all the fees together with this money factor in its lease recommendations (available, free, on its Web site: www.intellichoice.com).

The best lease deals usually come from manufacturers when they subsidize, and lower, the monthly payments on a slow-moving model. Such lease offers, called subvented leases, are rarely negotiable.

That's why Sampson thinks he got a good deal even with the extra payment. Ford wanted Taurus to be the bestselling car in America in 1992 and offered lots of incentives to sell lots of cars.

By contrast, lease deals offered at the local dealership level are usually "pie in the sky," says de la Cuesta, and very negotiable.

Some of his suggestions:

* Try to negotiate a lease with no disposition fee, in writing.

* Consider paying for extra miles up front. Most leases allow 10,000 or 12,000 miles a year, and you pay about 12 cents a mile for going over. But you can build extra miles into the lease for as little as eight cents each.

* Make sure the security deposit is not much more than one monthly payment.

* Insist that the dealer disclose all the lease terms, including the money factor. Otherwise, go somewhere else.

* Get a clear definition of "excess wear and tear." Otherwise you may face thousands of dollars for minor bodywork, new tires, or stains on the seats.

All of these are realistic negotiating goals, says de la Cuesta.

Even so, leasing may still cost more than buying. Consumer Reports recently found that for the 25 vehicles leased most often, buying was cheaper, assuming an "average deal" on the price, for all but two cars: the '97 Honda Accord LX and '97 Ford Explorer XLT.

Leasing was cheaper on 16 of the cars only if you negotiated the best possible price and terms, put no money down, and earned 3 percent interest on that money elsewhere.

If you want to know how the "smart money" acquires cars, consider this:

"More than 80 percent of millionaires purchase their vehicles," write Thomas J. Stanley and William Danko in their book "The Millionaire Next Door."

* Comments to evarts@csmonitor.com

Leasing is best for you if:

* You drive less than 15,000 miles a year.

* You usually get a new car every few years.

* You can write the lease payments off as a business expense.

* You want to put little or no money down.

* You maintain your vehicle meticulously and rarely leave dents, scratches, or stains.

A Lexicon Of Leasing

Capitalized cost: purchase price. Negotiable.

Capitalized cost reduction: down payment. Negotiable.

Residual: guaranteed value at the end of the lease term. Helps determine the size of your lease payment. Negotiable.

Acquisition fee: up-front cost. Often in addition to the security deposit. Negotiable.

Gap insurance: covers the difference in what the car is worth and what you've paid for, should the car be stolen or totaled. Generally a good idea.

Money factor: a finance charge that determines your monthly payments. Multiply it by 2,400 to know your interest rate. Sometimes negotiable.

Disposition fee: cost to turn the car in and walk away at the end of the lease. Often in addition to excess wear and tear and mileage charges. Negotiable.

Security deposit: usually a few hundred dollars held until the end of the lease, as insurance to cover other charges. Rarely negotiable.

Excess mileage: cost per mile owed at the end of the lease for exceeding allowed mileage - usually a cost higher than if you prepaid for the extra mileage. Sometimes negotiable.

Excess wear and tear: expenses at the end of the lease to bring the car back into salable condition. Covers scratches and dings, interior stains, cracked glass, even worn-out tires. The dealer should spell out what will be considered normal.