 New Jersey Guide to Auto Leasing
Introduction
Since 1982, the number of drivers who lease rather than buy their cars
has increased eightfold. One out of every three New Jersey residents now
leases a vehicle. Unfortunately, as the number of leases has increased, so
has the number of complaints of consumer fraud and deception.
In response, on December 23, 1994, Governor Christine Todd Whitman
signed into law the Consumer Protection Leasing Act ("CPLA"), N.J.S.A.
56:12-60 et seq., establishing what are perhaps the strongest motor vehicle
leasing standards in the nation. The law ensures greater protection for New
Jersey consumers by requiring lessors to disclose detailed information about
crucial terms of their leases.
In addition, the Board of Governors of the Federal Reserve System has
changed the Federal leasing law. The Federal leasing law, which took effect
on January 1, 1998, incorporates many of the concepts embodied in
New Jersey's CPLA.
The CPLA requires the Division of Consumer Affairs ("Consumer Affairs")
to educate consumers about leases. As part of its statutory obligations,
Consumer Affairs has prepared this booklet. With the help of this
booklet, the "Don't Be Taken For A Ride Guide to Auto Leasing," you can
determine whether leasing or buying is right for you; and if you do lease,
how to make certain you negotiate the best possible deal.
If you are considering leasing a vehicle, you should know
that...
The most important right you have as a lessee is to be free from fraudulent
practices. However, you should also realize that you have a right to be
given important key and accurate information about your lease without
having to endure undue sales pressure and confusing or mysterious language.
The CPLA and the Consumer Fraud Act ("CFA"), N.J.S.A. 56:8-1
et seq., incorporate these rights for New Jersey consumers into law.
Why do people lease?
The lure of a lease is its monthly price. Consumers often find that they
can lease cars at lower monthly payments than they would if they were
purchasing. Advertisements of "no down payments," "low monthly payments,"
and "more car for your dollar," are naturally very appealing.
The United States Department of Commerce reports the average price
of a new car is approximately $23,049. As a result, more consumers are
leasing as an alternative to buying new vehicles.
Before you make up your mind and lease that fancy sports car or brawny
sport utility vehicle, ask yourself two basic questions:
- Will it be cheaper in the long run to buy or lease this vehicle?
- If I lease, how do I get the best deal?
To answer these questions, a consumer must ask and answer other questions.
What is a lease?
A lease is basically a long-term rental agreement - more than 120 days
- to drive a vehicle owned by someone else. You are paying for the right to
drive that vehicle and are paying for the value of the car while you drive it.
When the lease is over, you must give the vehicle back unless you have the
option to buy it.
Before you sign the lease, take the time to review it carefully. Write
down any questions that may arise during your review of the lease contract,
and be sure to pose any questions you may have to the salesperson.
Make sure you understand the answers to your questions before signing the
contract. Also, be certain to get everything in writing. For example, if you're
told that you can turn the car in early without having to pay an extra penalty,
don't take the salesman's word for it, get it in writing.
Under the CPLA, you are given a one-day, cooling-off period to review
the lease contract. This innovative provision allows you to bring the
unsigned agreement home to review the numbers and to determine whether
that agreement is right for you. Not doing so could prove costly.
A lessor may suggest that you waive your right to review the contract;
however, you might not want to do that. In fact, you should think long and
hard before doing so. Remember, there are very few deals that are so good
that they will not be available 24 hours later.
How often do you purchase a new vehicle?
When you consider buying versus leasing, you need to ask yourself
how long you plan to keep the vehicle. The average consumer buys a new
vehicle every four years. If you are not one of these consumers and trade in
your car every two or three years, a good leasing deal may be better for
you. If you tend to keep your car for a longer period of time, purchasing a
vehicle may be better. The longer you drive a car on which payments are
no longer due, the lower the average of your monthly costs are likely to be.
Example: A car priced for sale at $10,000 will cost $277 a month for
36 months, $208 a month for 48 months or $166 a month over 60 months,
not counting interest costs. When leasing that same car, monthly payments
are fixed at whatever price you have negotiated - regardless of the length
of the lease.
Another consideration is crucial. At some point, the owner of a car no
longer makes payments and drives it for "free." When he or she goes to
buy or lease another vehicle, he or she has the car which has been paid for
in full as an asset to trade in towards his or her next purchase or lease. In
contrast, when a consumer returns his or her leased vehicle, he or she has
nothing to trade in towards the cost of a new lease or purchase.
What can you afford?
Many consumers are attracted to lease deals because of advertised low
monthly prices. While everyone likes low prices, there may be additional,
less-obvious costs associated with leasing. In the long-run, these expenses
may cost you more than buying the car. Lessors charge any number of fees
at the beginning and end of the lease which may not appear when you
purchase a vehicle. These fees add up and may make that good deal appear
less so.
Do you put a lot of wear and tear on the car?
If you are rough on your automobile, then leasing is probably NOT for
you. Lessors typically charge for "excess wear and tear." The CPLA helps
you sort out what this phrase means, but if you are the kind of driver who
gets a lot of dents and/or scratches, you can expect additional charges. Repairs
that need to be made become an out-of-pocket expense for you at the
end of the lease.
Understand the effect of trade-ins and down payments.
The key thing to remember is that any money you put down on your
lease or any vehicle that you have used as a trade-in to reduce your monthly
payments is money you no longer have available to you and money you
will not get back at the end of the lease. While you lower your monthly
payment, you will not have that money to purchase another car at the end
of the lease. You also will not have one car to trade in for another. At the
end of the lease, whether you have put no money down or have put several
thousand dollars down, the leasing company will charge you the same
amount of money for the car should you choose to purchase it. The only
thing you accomplish with a down-payment or a trade-in is to lower your
monthly payments.
Be on the lookout for special factory-subsidized lease deals.
To make a lease more attractive to consumers, car manufacturers may
adjust the residual value (see page 13) or lower the finance charges on the
vehicle being leased. Doing this allows them to offer leases through their
companies at lower money factors (see page 12) than those offered by banks.
They realize that consumers who lease vehicles from them do more repeat
business than consumers who purchase vehicles. The dealer's profit is on
the difference between the price the dealer paid for the vehicle and the
price the dealer sells the vehicle to the leasing company for, as well as
items such as service contracts, undercoating the car and alarms.
OK, so you think leasing is a good idea for you.
You have asked yourself all the right questions and the answers add up
to the same conclusion: you want to lease. Now is the time to ask yourself
two crucial questions. First, how does the lessor calculate the monthly payment?
Second, can I get a lower monthly rate? You can't answer the second
question unless you know the answer to the first. Lessors do not pluck
monthly figures out of thin air. Once you understand how the lessor sets
the monthly rate, you can negotiate with the lessor on even footing.
Know the language of the industry.
The first step is to understand the key terms of the lease.
Many of the
terms in a lease have special meaning - particularly the key words. Before
you negotiate your lease, you should learn these special definitions. You
may know terms such as "down-payment" and "MSRP," but you may not
be familiar with others such as "cap cost" and "gap coverage." Once you
have learned the terms used by lessors, you will be better prepared to negotiate
your lease. See the Glossary to help you to become more familiar
with the terms used in leasing, and, as a result, help you to be better prepared to negotiate your lease..
From the State Of New Jersey Department of Consumer Affairs
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