A judge in Maryland is currently looking into finding CarMax in contempt of court for it’s failure to abide by the terms of a 2008 class-action lawsuit settlement. The settlement in question ordered CarMax to provide a “clear warning” to customers when they were offering a vehicle for sale that had seen duty in a rental fleet.

“CarMax still does not disclose its vehicles’ prior use as short-term rental vehicles…” say the plaintiffs in this suit filed in  Maryland County Circuit Court. A spokesperson for CarMax, Trina Lee, replied: “CarMax provides information about vehicle history, including prior rental history, to its customers nationwide.” 

According to Maryland laws, “vehicles formerly used for a purpose other than a consumer good shall be clearly and conspicuously identified as to their former use.”  Former use, in this case, meaning that the car was used by rental car companies as part of their service fleet. Ms. Lee, the CarMax spokesperson, said that their procuderes include placing a note on the window sticker where prior use “includes the word rental where applicable.”  She continued, noting that the company will file a counter-motion asking the judge to dismiss the petition.

A rental vehicle is typically priced lower than a privately-owned used vehicle because their full maintenance and driving habits of the renters are not known. Clarence Ditlow, the Executive Director for the Center for Auto Safety, wrote “States like California and Maryland require disclosure of prior daily rental to avoid consumers paying too much.”

Notably, this class-action lawsuit covers only the state of Maryland. One of the terms of the settlement however, is non-disclosure.  As such, lawyers for the plaintiffs are not able to clarify their points with reporters, nor can they issue a press release with more details.  However, from studying the papers filed with the court, it seems clear that the plaintiffs believe that the terms of the settlement have been violated. Specifically, they claim that the rental-service status is “camouflaged and deceptive” and while they can sometimes be found on the order itself they are not consistently on the financing agreement. They go on to claim that CarMax uses “gratuitous and ambiguous terms” to distract consumers, with potentially misleading words like  “fleet, business use, executive vehicle” that don’t specifically call out use in a rental fleet.

The court is being asked to compell CarMax to fully comply with the terms of the 2008 settlement,  to additionally appoint a third party to monitor CarMax compliance and finally, to  provide legal recourse and compensation for anyone who bought a rental-use car without knowing they had done so.

The CarMax experience begins with a search of available inventory. Customers can either ask about a car that they saw online or provide their salesperson with criteria. If the salesperson finds a car fitting the customer’s criteria on the lot, then the financing process begins. Otherwise, the salesperson will offer the customer the opportunity to bring a car over from another lot. The price for transporting the car from the other lot is non-refundable, even if the customer chooses not to purchase the car. However, the customer has the opportunity to ask unlimited questions of an on-location salesperson about the condition of the car to be transported.

At a CarMax dealership, salespeople enter the customer’s credit application into the computer system. The application is sent through a series of prime and then subprime lenders, depending on the creditworthiness of the applicant. The offers then come through to the manager, and customers have the opportunity to view the approvals on the salesperson’s computer screen. Customers may take the financing from one of the CarMax lenders, but they also have three days to refinance with another lender if the other lender can beat the CarMax rate.

In addition to financing with CarMax Auto Finance, customers have the opportunity to view offers from multiple lenders. On the CarMax Auto Finance website, CarMax lists each individual lender and provides a general overview of their history and services. Since customers view multiple offers, they have the flexibility to choose the best loan for their needs based on available options. Lenders include CapitalOne, Wells Fargo Dealer Services and Santander.

People have a vast array of opinions regarding the CarMax experience as a whole. CarMax’s hallmark is its “no-haggle” policy regarding car price. The ticket price is the price that customers will pay, and negotiations will not be accepted. The lack of room for negotiation bothers some consumers, particularly experienced car customers who are comfortable with negotiations and who have the experience to spot opportunities. However, some consumers enjoy not having the pressure of negotiating prices with a salesperson, particularly if they dread the negotiation process.

CarMax also has a thorough appraisal process for trade-ins. Instead of receiving a ballpark dealer figure on a post-it note, customers will get a detailed form detailing why the dealership appraised the car at a particular price. Of course, not every consumer receives the quote that they feel is appropriate for their trade-in, and again, the company’s “no-haggle” policy applies. However, if consumers take the time to check their used car’s value with the Kelley Blue Book or with Consumer Reports, then they will enter the CarMax dealership armed with the information that they need to understand whether or not they received a fair trade-in offer.

Consumers should go into the CarMax experience in the same way that they should go into any car buying experience. The more information that consumers have, the more likely they are to get the best deal on a vehicle. In the past, CarMax has received the Better Business Bureau’s Torch Award for Marketplace Excellence. The company received the reward for “commitment to exceptional standards that benefit customers.” Customers who seem displeased with CarMax usually accepted a price that they later came to regret because they had not done their research before going to the dealership.

Before committing to any financing offer, customers should shop around. Looking at available offers from CarMax as well as consulting a bank or credit union will give customers an idea of what type of interest rate to expect based on their credit score. For many consumers, the CarMax financing experience proves to be a straightforward and trustworthy process.

Resources:
Federal Trade Commission Facts For Consumers: Understanding Vehicle Financing (http://www.ftc.gov/bcp/edu/pubs/consumer/autos/aut04.shtm)

Selling to CarMax

One of the extremely positive aspects of selling your car to CarMax is that unlike the typical car dealer, they don’t require you to trade-in your vehicle in order to sell it to them. Although CarMax does have a trade-in option for those who are interested in picking up a new car, they also allow car owners to bring in their automobiles for an appraisal which may lead to CarMax offering to purchase the car outright.

Unlike other resources, CarMax will also put their offer in writing and will honor it for up to seven days which provides car owners with a good opportunity to see if they can sell their car elsewhere for a higher price. If the seller opts to sell their vehicle to CarMax there will be a small fee attached to the sale, but this is not unlike the fee that would be charged for placing a for sale ad in the local paper. Those who decide to trade-in their vehicle will have a wide selection of used cars to choose from and may be eligible for a reduced taxes program on their car purchase.

Private Sales

Taking the private sales route often requires a greater time investment, both to place ads in multiple places and to meet with potential buyers. It is common for personal buyers to offer more money than a dealership as they will still receive a better price point than they would if they were to buy the same car directly from a dealer.

Utilizing this method allows both the seller and the buyer to get a better deal but it does come with some potential drawbacks which are not just related to time; if you’re unfortunate enough to sell someone a vehicle that breaks down shortly after the sale, they will know how to contact you and this could become an issue. Car sellers who are interested in selling to a private buyer should also consider their own personal safety when agreeing to meet with strangers in order to let them test drive the vehicle.

Other Dealerships

Going to a more traditional local dealer does also have perks, especially for those who are loyal to a specific dealership. The ease of trading-in a vehicle at the same place where you’ll be purchasing the next one does free up some valuable time; on the downside, trade-ins typically do not pay as well as selling a vehicle to a private party. If time is a huge factor, however, a trade-in is definitely a good option. Those who are interested in purchasing a new vehicle at the same time as trading-in an old one will save the most time if they go straight to a dealership which sells both new and used automobiles. The national chain CarMax only sells used vehicles, so those who do not want to go to multiple places to sell their old car and purchase a new one will be better served by a trip to a local dealership.

Other Ideas

CarsDirect.com mentions eBay motors as another viable option for those who wish to do a private sale. Utilizing the eBay format does provide an additional layer of security although there are some fees involved. CarsDirect.com also discusses CarMax and refers to their car purchase program as a very good option, especially for busy professionals.

Before you sell your car, you need to determine if time or money are the most important factors in the sale. If time is your main concern then going to CarMax or another car dealer is absolutely your best option. If you’re willing to stick with the car for as long as it takes to get top dollar, however, then selling to a personal buyer makes the most sense. Realistically, most people need to hit a combination of speed and money when selling their vehicle; due to the format that CarMax utilizes, they are a viable option and visiting them for an appraisal can give you a good base to start from.

A single CarFax report costs around $25, but a a 30-day unlimited account is available for just a little more…right around $30. Since the 30-day account is only a little more, there’s no real reason to buy a single report. With the unlimited account, you can pull reports for any VIN you want, and they come back instantly.

Although many, many consumer purchase CarFax reports, they don’t all use them to their full advantage. Knowing how to read the report will ensure that you are getting your money’s worth for the report:

Double Check the VIN

The VIN

Double check the vehicle identification number (VIN). It is located under the windshield on the driver’s side. Getting this correct is crucial to ensure that you are pulling the correct history report.

Standard Equipment/Safety Options:

This information can sometimes be useful to check that the car has it’s original options, and has not been rebuilt.  For example, if the car came standard with a CD changer, and there’s a single CD player in the car ( not a changer ), that can be a clue that something unusual may have happened to the car.

CarFax Safety and Reliability Report

This information isn’t about this specific car, but rather historical safety and reliability information for this model of car.   This can be helpful to determine if you’ve chosen the right model of car to purchase.

Safety information that’s included:

• NHTSA Crash Test Results
• IIHS Crash Test Results and Low Speed Damage Repair
• HLDI Injury, Collision, & Theft
• NHTSA Safety Recalls

Reliability information included:

• J.D. Power and Associates Ratings
• Identifix Reliability Ratings
• Information on Original Manufacturer’s Warranty
• Various Awards the model may have won

Ownership History: This is one of the most important sections, and fills you in on some really key information:

Owner Type: Was it a former rental car or fleet vehicle?  This can be both good and bad.  Fleet and rental vehicles get very regular maintenance, which is great, but they are also not always treated well by their drivers.

Car has moved across states:  Excessive movement could be an indicator that someone has moved the car to a state that is less stringent about reporting salvage titles.

Odometer Readings: Carfax will flag any situation where the mileage appears to have gone backwards over time…could indicate an attempt to “roll back” the odometer and make the car appear to have less miles on it than it really does.

Title Issues:

Salvage Title Example

Salvage: This is a vehicle that has been damaged to the point where it is worth less than 25 percent of it’s market value.  There is one class of Salvage title, however, that may not be a huge issue.  Several states report theft recoveries as “Salvage Events” on the title.  Even if the car suffered no damage, the title can get marked in this way.  Carfax does attempt to annotate these kinds of situations in the report.

Junk: Very similar to a salvage title. Many states use this type of title to denote a vehicle is not safe to be driven. Avoid purchasing a vehicle if the title history says “Junk” anywhere.

Rebuilt and/or Reconstructed: This is typically a car that’s been in a major accident, and repaired extensively.  If you are comfortable buying a car with this kind of history, do not pay blue book prices for it.  Cars with rebuilt titles typically sell for much, much less than an identical car without title issues.  Do consider safety, as most of these cars are rebuilt with 3rd party parts.  Additionally, most of the air bags usually deploy in an accident.  Do you trust that the rebuilder put the safety airbags back to full working order?

Fire/Flood: Avoid this kind of title.  Fire and Flood vehicles typically have issues with electrical systems, mysterious smells, or other hard to diagnose problems.  Even if the price is spectacular, it’s not usually worth the potential trouble.

Hail Damage: Hail damage doesn’t usually create any associated mechanical issues…it’s almost always a purely cosmetic problem.  If the body repairs were done correctly, you can often get a great deal on a former hail damaged car.   Be sure to have a mechanic and body shop inspect the car before you buy it.

Not Actual Mileage: Steer clear of this one.  This could mean the seller has stated that the odometer reading does not match the true mileage on the vehicle.  It could be something innocuous, like the failure and replacement of an odometer, but it could mean the odometer was tampered with.

Exceeds Mechanical Limit: Not an issue at all.  This just means that the vehicle has more miles than the odometer can display…many states label cars with this annotation after 100,000 miles, even if the odometer has more than six digits.  The mileage itself may be an issue for you, but this annotation really doesn’t hurt anything.

Odometer Rollback check: This is related to the last reported odometer mileage. Carfax sets this flag when it looks like there are conflicting reports about the actual mileage.  It could turn out to be nothing…like perhaps one mechanic at an oil change station incorrectly recorded the values.   But…be sure to find out what the issue is before you buy!

Total Loss Check: According to the experts at CarFax, not vehicles that have major damage receive a salvage title.  Carfax uses insurance claim records to tag vehicles that potentially have clear title, but also have a large claim that exceeds 75% of the vehicle’s market value.  If you see this mark…steer clear.

Frame Damage Check: Carfax puts this phrase in the report if there is actual, or suspected damage to the underlying frame or unibody in a car.   At the very least, it indicates the car went in for extensive body repair.   If your heart is set on buying the car, have a body shop check it out first.

Airbag Deployment Check: This one is a show stopper unless you have a real expert check out the car and verify that new airbags were installed correctly!

Accident Check: Many vehicles have been involved in accidents, and in fact, many of them in small parking lot skirmishes.   This isn’t a show stopper, but make sure that a mechanic certified in auto body issues check the car thoroughly before you buy.

Manufacturer Recall Check: If there are active recalls for the vehicle, Carfax will note them.  Don’t get overly concerned if there is a recall, but do make sure that the car has either been previously fixed in conjunction with the recall, or that you bring the car into the dealer to have the recall maintenance performed.

Basic Warranty Check: This is just a convenience note from Carfax…they check the year model of the car, the current date, and the length of the factory warranty, and let you know if the warranty has expired.

We consulted with the experts at a1autotransport.com, and compiled a list of tips to help you if you’re considering shipping a car:

Some people’s first instinct is that shipping a car would be extremely expensive, and they jump right into trying to find an alternate solution, like paying a college student to deliver the car by driving it.  The fact is, the pricing isn’t really much more than you would have to pay someone to drive it, especially when you consider the current high price of gasoline.  You also avoid the delays and risks associated with finding someone to drive the car, not to mention handing over your keys to a complete stranger without a business license.

While quotes can vary based on the vehicle type, distance, and current market, shipping a medium sized sedan a few hundred miles is in the $500 range,  1500 miles is in the $1200 range, and across the country is roughly $1500.   That’s not bad at all if you consider the cost to do it yourself.  A DIY cross country trip would involve about $400-500 worth of gas, and 4 days of hotel, food, and miscellaneous costs, which is easily another $500, if not more.  If you figure in time off from work, it’s probably more expensive to do it yourself.

Before selecting an auto transporter, here’s some things to consider:

• Prices can vary wildly based on current market conditions.  If you’re flexible with your dates, you could save a significant amount by shifting the departure or arrival dates.
• An “open carrier”, where your car rides in the open air, will be less expensive than a carrier that puts your vehicle inside of the cargo area of an enclosed trailer
• Choosing a “multi carrier”, where your vehicle is on a truck with others, can save you money, but will typically involve a longer transport time.
• When selecting a carrier, make sure it’s an established business.  Check references, and find out how long they’ve been in business, also, check the BBB website, is a good source of information as well.  You should also ask what amount of liability insurance they carry.  Most reputable carriers will have at least $50,000 of coverage per vehicle.

Only bringing a used car to an independent mechanic for a thorough inspection could tell consumers if they could expect a car to last. These inspections were expensive. Carfax saw the need for an easy and cheap way for buyers to learn more about a car before pulling their wallets out for a mechanical inspection. So, they entered the market in 1984 with vehicle history reports.

Vehicle History Reports: The Early Years

The Carfax service was pre-Internet, and the company sent vehicle history reports by fax. By the time the Internet opened up in 1995, business was good, with 100 million reports furnished. Carfax launched its Web presence in 1998 and continued to grow. Back then, Carfax was the only game in town. Most of Carfax’s business has been dealership based. The reports have become a bonus that dealers can offer to consumers who express doubts about buying a particular used car.

The Internet changed car buying forever. Suddenly, consumers could share information easily, getting all the information they needed to judge a car before arriving at the dealer’s lot. Carfax became a big part of that research process, although the pricing did not always make sense on a consumer level.

Carfax commonly negotiates prices with vendors, so individual consumers do not have the benefit of a simple pricing structure. In 2002, vehicle history reports became more consumer-focused with the entrance of AutoCheck into the market.

Owned by Experian, AutoCheck offers competitively priced reports on an individual basis for consumers. They can buy a single report, or an unlimited number of reports for one month, making AutoCheck a valuable tool for both car shoppers and dealers alike.

Simplicity for Consumers, In-Depth Reports for High-End Purchases

LeeAnn Shattuck is the “Chief Car Chick” at Women’s Automotive Solutions, a consulting firm that helps women buy cars through the entire car buying process in order to save time and money without the frustration of traditional car shopping. LeeAnn uses both Carfax and Auto Check, depending on the car she investigates. LeeAnn explains, ‘Just because a Carfax is “clean”, does not mean that the vehicle has not been in an accident. Conversely, an accident that is reported to Carfax may be very minor and not affect the quality of the car.’ In those cases, the reports are good negotiating tools for getting a better price on the car.

For this reason, says LeeAnn, buyers should always have the vehicle checked for prior damage and paintwork before committing to buy. Although vehicle history reports are supposed to show the maintenance history of a vehicle, it is rare to see the information displayed. “Most franchise dealerships report maintenance to Carfax, but not all vehicles are maintained by a dealer. The maintenance history of a vehicle is just as important (if not more) than accident history.”

An inspection by an independent mechanic (one who is trained to look for prior repairs/paint work as well as service history) is essential when purchasing a used vehicle. A vehicle history report is just the first place to start when researching a used vehicle.

LeeAnn believes that AutoCheck reports may be the best for most consumers because it provides the information in a simple, organized format that is easy for consumers to read. More expensive car purchases may warrant a Carfax because the report is more detailed, showing information that a professional car buyer might want to see.

Only as Good as the Information Source

Bike Lowell, co-founder of the auto advice website MyAutoTips.com agrees. “Carfax is not the end all be all – they don’t have all the records.” Having worked for Carfax, Bike understands how the information is collected. He explained that no vehicle history repot could have all of the information about a car. The reports are only as good as the information provided to them by state agencies and other sources.

If the information is entered incorrectly at the DMV, it will show up incorrectly on a vehicle history report. Despite this, Bike continues to have faith in vehicle history reports. He believes that recommending both Carfax and AutoCheck to buyers is part of his website’s mission of being there every step of the way for car buyers, from research, to checking out the car, selling, and financing.

Each Service Has its Advantages

Andrew Shipp, Business Development Manager at Cincinnati’s oldest car dealership, Busam Nissan also uses both vehicle history-reporting services. He explained that Carfax is used most often by his dealership because the name is instantly recognized by consumers. The dealership uses AutoCheck too, and has never had a problem with either service. He agrees that these reports are tools to begin the car-buying decision and that independent mechanical inspections are vital to making a good decision when looking at a used car. Each service has certain advantages over the other that should be considered.

While both companies report on the accident history of the car, AutoCheck seems to do a better job at reporting on accidents. The company has a more comprehensive relationship with car auction markets, giving them more information about cars sold at auction.

Carfax and AutoCheck are equally competent when reporting the car’s history on emissions. Consumers should look at the mileage on the car itself and compare it with the emissions report. A mismatch could spell trouble.

When it comes to readability, AutoCheck is the clear winner. The report offers a score for the car and compares that score with other vehicles of its kind. This gives the consumer a quick and easy comparison to decide if the car is worth the cost of the independent mechanical inspection needed before making a purchase. Although Carfax provides more details on car history, these details are unlikely to change the outcome of a buyer’s decision. Because the information is not organized in a simple formant, Carfax reports make sense for auto industry professionals, such as dealers considering whether to buy a particular car at auction.

Just like with any major purchase, researching and inspecting the car is the best way to be certain that it is the right car for the buyer’s needs. Careful inspection of the car by a mechanic is the best way to find out everything that has happened to the car. As a result, using one’s own mechanic to assess the car is the wisest course of action before purchasing it.

Sources:

AutoCheck – Where Accidents Get Reported.

Carfax – Show Me the Carfax.

Women’s Automotive Solutions – Car buying service dedicated to helping women.

MyAutoTips.com – Consumers’ #1 source of car buying information.

Busam Nissan – In business since 1909, Cincinnati’s oldest car dealership.

A typical VIN tag

It’s a scam that’s increasing in frequency across the U.S., through a process called VIN cloning.

The process works like this.  Somone steals a vehicle, then “clones” the VIN (Vehicle Identification Number) of a different car, but one with the same model, year, and usually, paint color.  The “cloned” VIN, of course, doesn’t have an active police report out on it, and nobody is looking for it. Perhaps it’s the sluggish economy that’s spawned this creative, but devious, new practice.

There are many approaches the thieves can take to reuse an existing VIN number. Most typical? The scam artist steals a vehicle, then finds a car in a large parking lot, like a mall, that’s the same year, make and model. Then, they peer into the lower driver’s side of the windshield, and read the VIN number that’s embedded in a metal label on the dashboard.  Now, they have a metal fabrication shop create a new metal VIN plate with that number and install it in the stolen car.  There’s even a thriving overseas market where these “replacement VIN plates” can be purchased for next to nothing.

Installing the replacement plate can be a bit of a challenge, since it’s wedged tightly in the narrow space between the dashboard and the bottom of the windshield.  But, the scam artists can be pretty creative, resorting to specialty tools like flexible drills, magnets on long probes, and a combination of adhesives and “fake rivets”.  And, if the car is particularly valuable, they may even remove the dashboard temporarily to achieve a factory-installed look.

Our advice? Look in the other locations where the VIN is stamped into the car.  The locations vary by model, but it’s easy enough to look up on the internet.  Many models of cars also store the VIN in the car’s computer, and can be extracted with a tool commonly kept at many auto parts stores.

Here in the U.S., we tend of thing of things that are more than a hundred years in age as being “old” or “antique”.   The “oldest” pieces of infrastructure, like bridges and roads are, at most, two hundred years old, and there’s certainly not many of them to speak of.

Now, get a on plane an hop over to the U.K.   When I landed in Lincoln, I was told that the town harks back to the first century, B.C.   Well over two THOUSAND years ago.  That was certainly an advantage when it came to sightseeing, but in some cases, it added a bit of challenge to driving.  Check out this third century Roman gate, situated smack dab in the middle of the road:

left: tourist version
right: reality

Now, don’t get me wrong.  I appreciate history and sightseeing as much as the next guy, but it wasn’t just this arch.   The roads seem to have been original Roman work as well.  Cobblestone everywhere, and it was a rare treat to find a road wider than my rental car (a piece of crap Fiat, by the way).

One thing I did appreciate….the locals were absolutely courteous drivers.   Wasn’t my experience in London, but once I got my tiny Fiat out into the country, it was amazing to see how drivers were willing to forgive an uncouth American learning to stay on the correct (not right) side of the road.

There was also one area where I almost lost my cool, but recovered when I saw what the structure was.  Approaching on the right side of a canal, I saw what appeared to be some sort of insane draw bridge:

Turns out it wasn’t a drawbridge after all, but rather a sculpture from 2002 called “Empowerment”. Perhaps my artistic tastes aren’t sophisticated enough to discern art from a damaged over water bridge.

Finally, to top it off, the entire town is built into the descending side of a sloping cliff, with the north end of the town some 200 feet higher than the south. It’s not an exceptionally steep slope, so there’s no over the top inclines like you would see in San Francisco. On the other hand, it rains here quite a bit more here. And, as you would imagine, the south end of the town takes the brunt of it. Guess where my hotel was? My trusty rental Fiat actually did quite well with the minor flooding, though it did have a musty smell when I turned her back in.

All in all, it was a terrific trip, despite my unhappiness with driving around the town. The people were wonderful, as were the local pubs!

1.Understand the total cost of the vehicle. Even if you do not know the first thing about leasing, do some simple match and multiply the payment amount by the number of months, account for rebates and incentives, include your own payment (if any), and then add the value of the car at the end of the lease term (otherwise known as the “residual value”).

Here’s the formula:

Payment Amount *(term) + Rebates + Incentives + Down payment + Amount due at Lease end = The total cost of the vehicle.

Why should you do this?  It’s simple…this little bit of match allows you to the lease to a traditional car loan. Normally, the lease package should be close in terms of overall cost to a traditional loan. The lease terms and interest rate may vary a bit, but it remains a goog high-level indicator of a fair deal. If the dealer tells you that lease rates are higher because the bank is only offering low interest rates for loans, then perhaps you should not choose a lease. In practice, this shouldn’t happen often: If a bank can offer a low interest rate they can also offer a low lease rate.

2. Know the terms of a current traditional car loan! This is important for step 1. Calculate the cost of the car using interest rates from 1 to 7% and terms of 36 to 60 months. If you don’t know how to do this find an online loan amortization calculator. You just calculate the payment for typical current interest rates offered for new cars (in the range of 1 to 7 percent)  and remember to account for any rebates or buyer incentives and rebates, and also the down payment.

Now you should have two deals to compare. If the total cost of your lease in (step 1)  is reasonably close to the total cost of financing the car (step two, using a 6% rate), then you know you’re looking at a lease deal that’s similar to buying the car at a 6% interest rate. If, however, the dealer is offering something special on a purchase, like perhaps a 0% interest rate, then you know that the lease isn’t as a good a deal, and you have some negotiating to do.

3. Now that you ‘ve compared the total cost of your lease and found what the comparable interest rate loan is, how do you tell if it’s a good deal? This is the point where a lease becomes confusing for most people. The answer is “no” if your plans are to return the car at the end of the lease. Why is that? Leasing is basically taking out a loan to finance the depreciation on the vehicle. You’ve probably heard the saying “a car loses 20% of it’s value the minute you drive it off the lot”. This is very close to being true. The depreciation, or “loss in value” is what your lease payments are financing. That means that if you pay a higher amount than the actual depreciation, it’s not a great deal.

4. Do not make a large down payment!  Remember that the lease is paying off the estimated amount of depreciation on the vehicle. If you make a large down payment, the dealer can then allot that down payment to offset the residual value of the vehicle While this will allow for a low monthly payment, it almost forces you to keep the car at the end of the lease, because that’s what your down payment reduced…the residual value.

5. If you shouldn’t make a large down payment, how much should you pay up front? The best answer is $0…nothing. That said, not all vehicle, or all purchasers, will qualify for a zero down payment. Calculate the following: payments*term + down payment + rebates and incentives. Look at that number and then ask yourself is this how much the car is going to loss value in over the term I am looking at? For example, if you do this math on a 30K car that you want to lease for 36 months and the value equals 20K, then something is wrong. Either you payment is to high, you down payment is to high, or they did not give you the rebates. Warning, when doing this compare keep in mind that you pay interest in the lease based on the lease factor so your numbers may be off a little depending on the lease factor they gave you. If you did step one and two, then you know you approximate equivalent interest rate and you should be able to determine a reasonable amount to factor in.

6. Leasing is financing the depreciation of the car! I know this has been said before, but it is so important to understand this. There is no need to have a residual value at the end of the lease that is below what you think the value of the car is going to be at the end of the term. Your payment should be the lowest you can get while keeping the residual value high or above the estimated value of the car at the end of the lease. This seems the opposite of what you would thing, right? Well, if your residual value is higher than the car is worth at the end of the lease, then you are in effect renting the car for less while you are driving it which is the object of a lease (very important: remember all you checks in step 1 and 2, it is you check that they have applied all amounts).

7. In most cars, 36-month leases are optimal. Why? It has to do with depreciation. Any longer and your paying for a steeper rate of decline and it does not make sense to do that.

8. Never do off – term loans (i.e. 39-months, 52-months, etc)! These are designed to build in better profit margins while looking better to the consumer. I have never seen one in that is better then a traditional term loan. They might be out there, but if you go down that path be sure you know how to fully calculate everything on the loan because if you don’t you are probably better off pulling all your cash out of your wallet, handing it to the dealer, and then leaving.

Before you lease always know at least how to do the tips above and please do more homework. Leases are very easy for dealers to make incentives and down payments disappear. I firmly believe, that with out leasing the car dealers would be in far worse condition profit wise today.

Be wise, do you homework and happy leasing! Send questions out to the public in the comments!

I just recently had an awful experience at Carmax in Austin, Texas (North location). I first contacted them via the internet and a sales consultant emailed me right away: Kris Santoscoy. I knew the exact car I wanted and there was no other like it in the state. I went to the lot during lunchtime and test drove it. I wanted the car right away – I filled out some paperwork and got approved. I went back to work and started the process of getting my insurance and proof of income. I faxed those to Kris the next morning and arranged to pick up my car that day.

He got all the docs then called me a few hours later with “bad news”. He told me that overnight, their staff was moving cars around me and one of their employees wrecked two of the cars on the lot, one of them being mine. He said that they do not sell wrecked or damaged cars at all and that it would have to be sent to a wholesaler. I was devastated! I arranged to go to dealership that same day and talk with him about my “options”. I was hoping to see the car, get a more thorough explanation and verify that I was not financially responsible for the car (I had not signed the final paperwork yet, so I was pretty sure that was the case).

I get there, and Kris is gone. Another sales guy helps me and glosses over the wreck issue entirely – steering me towards choosing a new car. I smell something fishy so inquire further: “can I see the car?” “does this happen often?” “Can I see the paperwork to make sure I’m not liable?” etc. He finally says “well….maybe the car was not wrecked” – I am shocked and say “MAYBE??” – he says “maybe it was sold instead and he didn’t want to tell you” WHAT?????? I demand to know all the details of what happened to my car either way. He finally confesses “yes, it was sold”. The manager finally comes over and admit that Kris lied to me….the car was never wrecked. Kris failed to do the paperwork/process on his end and that first evening, the manager sold the car without knowing I had a claim on it!!!!!!! I was SHOCKED!

He was very apologetic etc…. He said he could cover the transfer fee for another vehicle outside Austin. I requested they cover the transfer fee for ANY car in the nation and they refused. The most they would over was $200 – basically inside Texas. I said the LEAST they should do is let me find the exact car – no matter where it is – and get it to me. They would not offer me more than the $200 transfer fee. I left and ended up buying a car from another dealer.

BUT, I later found out from the dealership down south – that it is easy to “lose” a car that you are interested in because everyone is looking at that same car online and anyone, anywhere could be staking their claim on it….so it’s first in line so to speak. Apparently, it is often the case that a customer is interested in a car and test drives it, and at the same time elsewhere, someone is starting the paperwork on that same car. They don’t appear to have a great system for “claiming” a car. In my case, my sales guy was incompetent and I was out time and trouble – and betrayed in the process.