There are so many ads on TV enticing you to come in and lease that new car for $199 per month or that new truck for $349 per month, how can that be?

Well, just look at the fine print.

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Sometimes there are some crazy deals out there but more often than not, those ultra-low lease payments can require as much as $5,000 for a down payment! It’s what’s referred to as a Capitalized Cost Reduction. In addition to the large down payment, it’s often a ten thousand mile per year lease and it’s always “not including tax, tags and fees, etc.” so you may need to put down a good chunk of change plus tax and fees to get that low payment.

Usually there is an acquisition fee in the beginning and a termination fee at the end so be very careful!!  We see it all the time, people trying to finance the car at the end of the lease as they owe the leasing company so much money in over mileage fees! Unfortunately, they just did not pay attention to the mileage restriction of 30,000 total miles on the vehicle in 3 years, often so many people around here put 15 to 20 thousand miles per year on their cars, or more.  It’s important to know how many miles you average per year.

Another important thing to keep in mind even if you are tempted to put the money down to get the low payment, it may be a wise choice to keep the money in the bank, take a larger payment and if you need to, withdraw the money to subsidize the payment. One thing many people do not realize, if you total that car, your insurance company will pay off the leasing company but you will not get any money back, any money you use as a down payment on a lease is not equity for you, it only reduces the monthly payment, you don’t own the car. On a lease, the leasing company owns the car, you are only the registered owner, so if you put down $6,000 for a “cap cost reduction” on a lease and the next day the car was totaled, your $6,000 is gone! On a purchase, the insurance company would pay off the loan and give you the difference.

Food for thought, always read the fine print! Be CAREFUL!!

(This blog post is for educational purposes only)

Vince Lobosco

SVP, Consumer Lending

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