This post is a variance from my ususal business posts but I hope it will help someone avoid the mistakes my family has made. We have leased 2 cars and both experiences have turned out badly in the end.
The first thing I wish to tell you about leasing is that the terms are written in favor of the leasor (the credit company). They will give you a nice low payment and promise the car will still have a high resale value at the end. The section that deals with mileage overages and scratches will be as small and hidden as they can possibly write it. There is NOT a death clause in your lease. You will be responsible for the lease until the bitter end and will still likely owe the company money even after termination.
The first lease we entered into was a 2000 Volvo. We put a little down and made payments for 52 months with the expectation we could either turn in the car and walk away at the end, or purchase it for the estimated market price of $16,000. Sounds like a deal. So we made our payements faithfully every month. Near the end of the lease we contacted the credit company about turning in the car. They sent out an “appraiser” to assess any damage. We had 15 total inches of scratches, each no more than a 1/4 inch long throughout the car. The cost to turn in the car was an additional $2000. So we looked into selling the vehicle or purchasing it. Funny thing, the current market price on the car was a mere $13,000, so we would be paying more than $3000 above market. Negotiating with the credit company was useless. Since we knew the condition of the car was mechanically excellent we purchased the car for the $16000, rather than turning it in. After all the payments it turns out I have paid about the same amount as if I had purchased the car outright for a 7 year term.
The other lease story is my mothers. In 2003 my mother was diagnosed with terminal cancer. We only expected her to live for another 6 months, but year after year she held on. She had always leased vehicles from Ford Motor Credit which she used as her work car, and was able to write off most of the expenses. In 2006, bald and obviously suffering from her cancer she turned in her current vehicle and attempted to buy a new similar vehicle, due to the “trade in special offer” she had received from Lincoln.
Her credit was not adequate to afford the high interest payments of a conventional loan so her long time leasing agent convinced her to Lease again.
Now knowing her condition is terminal she requested what the conditions would be upon her death should it occur before the end of the lease. The agent informed her that her heirs could take over the lease or merely turn in the car.
Unfortunately the “turn in” part is only partially true. FMC lease requires that the lease be paid in full if the car is turned in early, written in light grey on white paper so you cant read it well.
Upon her death in 2008 we contacted FMC and the Leasing agent at the dealership and both suggested we return the car as a “voluntary repo” and “pay nothing”. In March we received a bill from FMC’s collection agency for $9000 with no breakdown of the charges. Had we kept the car and made the 10 remaining lease payments it would only have costs us about $5800. So what are the remaining $3200? Late fees and the lower selling price of the car than the termination value when sold at auction. The purpose of turning in the car was to avoid paying the remaining payments, and we thought that the verbal agreements with FMC and the dealership would be binding. But it is not.
The only possible out for this will be to settle for a lower amount and/or tie it up in court while dealing with the estate probate process. GA does allow for spousal years support which may make the amount uncollectible. We are not really worried about credit ratings at this point.
My advice for anyone considering a lease.
1) Don’t do it! Not even for business tax benefits.
2) If you don’t follow #1, read the fine print. Examine the likelihood of your ability to pay should you lose your job or have health issues.
3) Save up cash for the end, do not roll expenses forward to the next loan/lease. You will get upside down quickly.
4) Never buy cars from FORD, LINCOLN, or MERCURY. There is a reason their sales are declining, and it has little to do with competition or market conditions. Other companies leases may not be much better so do your homework.
5) Buy a used beater for $1000-$2000 in good mechanical condition and pay yourself the equivalent lease payments for 3 years. You will have enough to pay cash for a good used car. $400×36months = $10800 (plus what ever interest you earn). You will also save on insurance costs. Avoiding dept and leases will help you become wealthier. As Dave Ramsey says “live like no-one else today, so you can live like no-one else tomorrow”.
6) Drive your old car until it costs more to repair it than to replace it. A car is not a reflection of who you are, it is a mode of transportation. While there are minimum personal comfort and size requirements you should not be emotionally attached to a car. If you have grown tired of your car, have it painted or replace the interior carpet and seat covers. It will almost feel brand new and improve the value. Or swap cars with your spouse for a while.
7) See #1.
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