Post #303957 by Mai Tai on Fri, May 4, 2007 1:41 AM

It's the amount of interest that is automatically built into the lease that kills you. I'm a former accountant, double majored in finance and accounting. The price of the car isn't inflated, it's pretty much the MSRP, but you'll notice that leases never tell you what the interest rate is. Based on the price of the vehicle, the monthly payment on the lease, the number of years on the lease, and the salvage value of the vehicle at the end of the lease, you use all that information to figure out (impute) an interest rate.

Another thing not known to the average joe is that the interest rate on the lease is negotiable as well. When I was studying accounting, one of my professors had just bought a new pickup. He was teaching us about leases at the time, and said that it really doesn't matter if you lease or buy, as long as you can get the payments down low enough - which is pretty much true. He decided to lease his truck, and had asked for the interest rate of the lease. They told him it was around 7%. He went home, evaluated all of the information, and when he imputed the interest rate, it was actually around 22%!!! He called the dealership on this, and was able to get the truck with around 7% financing, which brought his monthly lease payment down to under $200 per month, which was a lot cheaper per month than buying the truck.

When you go to buy a car, they are either going to hit you with a higher price on the car, or a higher interest rate. The lower the interest rate, the less they will negotiate on the price of the car. An old girlfriend's sister had a pretty good trick. She was prepared to pay for the car in cash - either she had saved up, or already had financing through their bank, etc. But she didn't let the dealership know that. She went in, and negotiated on the price of the car. The dealership would only go so far on the price of the car, so she suggested that they lower the price of the car and raise the interest rate. They gladly agreed to this, and lowered the price. She said she still wanted a lower price, so go ahead and raise the interest rate some more. They gladly did, and made another offer. She had them raise the interest rate one or two more times, which they did, until she got the price down to what she wanted. At this point, the interest rate was sky high, like 25% or so, so she had them type up the contract, which they gleefully did.

When all of the paperwork was completely finished, and both parties were completely locked in, and they handed over the keys to her, she then said "Oh, by the way, I think I changed my mind on making payments, here is the full payment for the balance of the car loan now". She then whipped out her checkbook, and wrote a check paying for the car in full! She actually could have waited 30 days or so to do this, but she said the look of shock and horror on the car dealership guys' faces was priceless!!! She said that they were really pissed off about it, selling the car at a really low price and making no interest off of it, but that there was nothing that they could do. The main reason she paid them up front, instead of sending a check in, was to get back at them for trying to take advantage of her. It's not too often that one can get over on a car salesman, but that was a good one. I'm going to try it one day.

So who says only men get better deals on their cars? :)