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Leasing Tips
Leasing Quiz
By Philip Reed, Senior Consumer Advice Editor
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Are you sure you're ready to lease your next car? What if the salesman tries to
bamboozle you with talk of "cap cost reduction" and "money factors"? Will your
eyes glaze over in reaction to this double-talk? Or will you know what he is really
saying?
You can confirm your level of preparedness by taking our leasing quiz. Give yourself
one point for each correct answer. Buyers who score above eight can proceed with
confidence. Buyers who score below seven better take an ex-car salesman along
with them. Those who score below five might want to get ready to file for Chapter
11.
1) Leasing is too complicated for the average consumer to understand, so just
smile knowingly and hope the salesman doesn't charge you too much. True or false?
2) Even if you are confused by leasing, you can usually get a good deal by soliciting
quotes from multiple dealers. True or false?
3) The interest rate in a lease contract is called:
1) The capitalized cost
2) Money factor
3) There is no interest rate in a lease contract
4. When you lease a car, there is no negotiating. The price is set by the dealer
or the bank and you basically have to take it or leave it. True or false?
5. To maximize the benefits of leasing, you should lease a car for:
1) 36 months
2) 48 months
3) 60 months
6. When you lease a car, you pay less sales tax. True or false?
7. Which of the following words has nothing to do with leasing?
1) Cap cost
2) Residual value
3) Debt-to-income ratio
4) Money factor
5) Gap insurance
8. If you get a small scratch on your leased car, you will be charged the cost
of repairing it at the end of the lease. True or false?
9. Which lease is the best one for you?
1) Open-ended
2) Close-ended
10. Leasing doesn't make sense because I make all those payments and then I turn
the car back in at the end. I have nothing to show for it. True or false?
Answers
1. False. Leasing is complicated but there are several easy ways to control
the transaction. And we're not talking Jedi powers here, either. Read on and the
basic elements of leasing will be revealed in later questions.
2. True. However, make sure you are comparing apples to apples. In other
words, decide the terms of the lease: length (we recommend 36-month leases), number
of miles and drive-off costs. Also, make sure the cars you are comparing are the
same trim level with the same options. If all these things are the same, you can
see where you will get the best deal.
3. 2) Money factor (sometimes called "lease factor"). The money factor
is written as a multiplier, not a percentage so 9 percent would be expressed as
.00375. To convert the lease factor to a percentage multiply by 24; to convert
the percentage to a money factor, divide by 24.
4. False, false, false! Leases are as negotiable as a sales contract. In
fact, a bad lease can cost you more than a bad purchase.
5. 1) 36 months. One of the reasons to lease is so that you can change
cars frequently. Also, if you lease for 36 months, you minimize your maintenance
costs since the car will always be under warranty.
6. True. One of the advantages of leasing is that you only pay tax on the
portion of the car's value that you use. If you hate taxes, you'll love this aspect
of leasing.
7. 3) Debt-to-income ratio. If your car salesman starts talking about this,
watch out! He's trying to leverage your house since debt-to-income ratio is used
in the mortgage business but has nothing to do with leasing. The other terms —
cap cost (also called "capitalized cost"), residual value, money factor and gap
insurance — are all terms you might encounter when leasing. See our leasing
glossary to learn more.
8. False. The lease contract allows for "normal wear and tear" so minor
damage should not cost you anything. However, it's a good idea to get your car
washed and vacuumed before returning it at the end of the lease.
9. 2) Close-ended. This means you can turn the car in at the end
of the lease without making any further payments (although you might be held responsible
for excess mileage and damage to the car). In an open-ended lease, you may be
responsible for further costs.
10. False. Your money has allowed you to drive a new car for less than
it would have cost you to buy it. And even when you buy a car, you are usually
"upside down" (meaning the car you purchased is worth less than you owe on it)
for several years.
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