The Biggest Car Leasing Scams and Tricks

Some of these scams are straight-out fraud while others are legal gray zones. Let's take a look at what you're most likely to encounter.

Fraudulent Leasing Scams

These are the types of scams that can really get dealers into trouble. They're most often used on consumers who are ill-informed when it comes to leasing.

1. Raising the Price of the Car
   Informed consumers know that the negotiated price of the car has a direct affect on the monthly lease payments. It's called the capitalized cost in lease terms and one of the most common leasing scams involves the dealer switching the price of the car after you've already negotiated.

   The law requires that the capitalized cost be stated in the contract, but many consumers are still confused and don't realize what it means. A dealer can easily add a couple of thousand dollars to the price and you wouldn't even realize it. If you do notice it and bring it to their attention, they will just claim that it was an honest mistake.

   Some car shoppers don't even realize you can negotiate the purchase price during a lease, so they leave it up to the dealer and end up paying MSRP. Always check to make sure the capitalized cost is the same price you negotiated for the car.

2. Stealing Your Trade-in and/or Down Payment
   As crazy as this sounds, dealers can literally steal your trade-in and/or down payment with a stroke of a pen. Similar to the first scam, this one involves changing or removing the capitalized cost reduction in the contract. Again, it's the confusing terms that seem to trick people.

   If you have equity in a trade-in, or are putting a down payment on the lease (See: Why you should never put a down payment), you need to make sure this is included in the lease contract. Any trade-in equity or down payment is supposed to reduce the capitalized cost but a few dishonest dealers simply leave this out of the contract. If you're just looking at the monthly payments, you may not notice the difference and the dealer just ended up pocketing several thousand dollars.

3. Lying About the Money Factor
   Money factor is another thing that seems to confuse leasing customers. Money factor is basically the interest rate shown as a fraction. To convert it into an interest rate you're familiar with, you just need to multiply by 2,400 - but a lot of people don't realize this so it's an easy way for dealers to take advantage of the situation.

   Let's say the money factor is .0025 so that would mean the interest rate is 6% (.0025 x 2400). An unscrupulous dealer may tell you the interest rate is 2.5%, hoping you get confused between 2.5% and .0025. A true 2.5% interest rate would equal a money factor of .00104 - but in the agreement the dealer will put down .0025. If you bring it to their attention, they will claim they told you 2.5 for the money factor, not the interest rate. This is straight up fraud, but they always have an excuse.

4. Hiding Add-Ons into the Lease
   Although this scam isn't as brazen as the first one, it's very similar in that they increase the overall price of the vehicle - this time by including useless add-ons such as pin striping or even extended warranties. (Buying an extended warranty on a lease is ridiculous since the manufacturer warranty usually covers everything during the short duration of the lease). The uninformed consumer doesn't notice the increased monthly payments.

5. Increasing Length of the Lease
   You may be negotiating for a 24 or 36 month lease, but if the monthly payment is too high, some dealers will lengthen the term of the lease to 39 months or longer to lower the payment. The problem is they won't tell you. Sure, it will be written into the contract, but it's easy to overlook if you're not paying attention.

Car Leasing Tricks

The next set of scams are not necessarily illegal, but they are tricks that are used to make it seem like the lease is better than it really is.

1. Termination Penalty Fee
   If you're concerned about early termination fees (which you should be), don't expect the dealer to tell you the whole truth. Terminating your lease early can result in thousands of dollars in early termination penalties. These are on top of an early termination fee - usually $200 to $400. But if you ask a dealer, they will only tell you about the early termination fee and not the penalties. It's a small difference in words, but a huge difference in cost.
2. Lease Versus Buy Comparisons
   Don't ever trust a dealer to fairly compare a lease versus buy decision. It's easy to fool an uninformed consumer into thinking that a lease will always be better than a purchase. The lower monthly payments makes it easy to do this. Smart shoppers do their own comparisons and don't leave it up to the dealer. Leasing CAN be a better deal in some cases, but don't trust the dealer to show you.

3. Total of Monthly Payments
   When we see the word "total", we assume that's the total amount, but not in leasing. If you add up all of your monthly lease payments, this will be the total of your monthly payments but this figure does not include any down payment, acquisition, and security deposit fees. That could easily add $5,000 to your total lease cost, but you wouldn't realize it because you're looking at the total monthly payments figure.