We're going to fill in the hole, but let's make it a little bigger first.
August 3, 2011 8:23 AM Subscribe
Leasefilter: Why does my dealer seem to be changing figures in my auto lease contract to make an error have a greater impact, and then compensating for the larger mistake, instead of just fixing the original error?
All right, that was clear as mud, but people knowledgeable in lease contracts, please bear with me. This is my first car lease, so when I speak in small words here it's for my own benefit, not an estimate of your intellect.
So, leased a spiffy new car. Yay. Everything went better than I expected and I left happy. Then a couple days later I get a call from dealer's finance guy. They messed up the residual value on the car. They used the value for a 2012 model (mine's a 2011). But don't worry, they say, your payment won't go up. They've sent me a new contract to sign and send back.
Okay. Now I'm comparing the new contract to the original one, and some things are confusing me. (Rounding all the numbers here.) On the new contract, the residual value, what the car will be worth when I give it back at the end of the lease, is about $1700 less than the original contract said it would be. So, since my payments divide up the total depreciation on the car, plus a finance charge (contract calls it a "rent charge") for the fact that I'm borrowing the bank's money to buy the car, that means normally my payments would go up to cover the additional $1700 in depreciation over the life of the lease, right?
The dealer said they compensated for that by reducing the rent charge so my payments would stay more or less the same, and they did. My new payment is actually a dollar and change less than the old one.
But here's where I get confused. They didn't just reduce the rent charge by the $1700. They jacked up the cost of the car by $775, and so, along with various other included costs that aren't itemized in the contract, that added roughly $1300 to the initial cost of the car. In addition to the $1700 from the changed residual value, that widens the gap between the old contract and the new one to about $3000, so they reduced the rent charge by $3000.
What's the point of that? I can't see how I'm getting ripped off in any way. I'm still making 35 more payments of about the same amount. The termination fee if I don't buy the car didn't change, and the cost if I do buy it actually went down. But why would they change a bunch of extra numbers upfront to require a $3000 reduction in the rent charge instead of just reducing it by the original $1700?
Despite the payments staying more or less the same, do I need to be wary of anything here? Is this the dealer working the bank with me as innocent bystander? Basically, what's going on?
All right, that was clear as mud, but people knowledgeable in lease contracts, please bear with me. This is my first car lease, so when I speak in small words here it's for my own benefit, not an estimate of your intellect.
So, leased a spiffy new car. Yay. Everything went better than I expected and I left happy. Then a couple days later I get a call from dealer's finance guy. They messed up the residual value on the car. They used the value for a 2012 model (mine's a 2011). But don't worry, they say, your payment won't go up. They've sent me a new contract to sign and send back.
Okay. Now I'm comparing the new contract to the original one, and some things are confusing me. (Rounding all the numbers here.) On the new contract, the residual value, what the car will be worth when I give it back at the end of the lease, is about $1700 less than the original contract said it would be. So, since my payments divide up the total depreciation on the car, plus a finance charge (contract calls it a "rent charge") for the fact that I'm borrowing the bank's money to buy the car, that means normally my payments would go up to cover the additional $1700 in depreciation over the life of the lease, right?
The dealer said they compensated for that by reducing the rent charge so my payments would stay more or less the same, and they did. My new payment is actually a dollar and change less than the old one.
But here's where I get confused. They didn't just reduce the rent charge by the $1700. They jacked up the cost of the car by $775, and so, along with various other included costs that aren't itemized in the contract, that added roughly $1300 to the initial cost of the car. In addition to the $1700 from the changed residual value, that widens the gap between the old contract and the new one to about $3000, so they reduced the rent charge by $3000.
What's the point of that? I can't see how I'm getting ripped off in any way. I'm still making 35 more payments of about the same amount. The termination fee if I don't buy the car didn't change, and the cost if I do buy it actually went down. But why would they change a bunch of extra numbers upfront to require a $3000 reduction in the rent charge instead of just reducing it by the original $1700?
Despite the payments staying more or less the same, do I need to be wary of anything here? Is this the dealer working the bank with me as innocent bystander? Basically, what's going on?
Have someone fluent in accounting and/or legal-ese read it over. That smells awfully fishy.
posted by Mister Fabulous at 8:58 AM on August 3, 2011 [2 favorites]
posted by Mister Fabulous at 8:58 AM on August 3, 2011 [2 favorites]
Perhaps the sale value on paper is what is used to calculate his commission? You say the new contract had a higher sale value = more commission for him and since you're paying less, you're unlikely to kick up a fuss and alert his boss?
posted by dougrayrankin at 9:52 AM on August 3, 2011
posted by dougrayrankin at 9:52 AM on August 3, 2011
Maybe he loves you and can't find another way to indicate it.
posted by jaduncan at 10:30 AM on August 3, 2011 [2 favorites]
posted by jaduncan at 10:30 AM on August 3, 2011 [2 favorites]
Response by poster: Dougrayrankin, that's close to the only thing I can think of. It seems to me that the dealership makes their money on the front end sale price of the car, while the bank makes its profit off the finance charge for letting me tie up their money in my nice new ride for the next three years. So it looks like the bank's the one that gets squeezed here, while maybe the dealer's taking back some profit for themselves.
But I'm totally guessing at that, and hoped someone on here would be a dealer or a banker or someone who could say for sure before I sign this thing and send it back to them.
posted by Naberius at 10:47 AM on August 3, 2011
But I'm totally guessing at that, and hoped someone on here would be a dealer or a banker or someone who could say for sure before I sign this thing and send it back to them.
posted by Naberius at 10:47 AM on August 3, 2011
It seems to me that the dealership makes their money on the front end sale price of the car, while the bank makes its profit off the finance charge for letting me tie up their money in my nice new ride for the next three years.
The bank and the dealer are likely to have a deal where the dealer gets some of the bank's money, but, yeah, this might be a way for the dealer to get even more money. I, too, think this sounds fishy, but they claim that you will save money if you decide to buy the car and are otherwise ahead as well. There might be a difference if you don't decide to buy the car or want to stop the lease part of the way through it, but I can't figure that out from this description.
If in doubt, don't do it.
posted by grouse at 11:30 AM on August 3, 2011
The bank and the dealer are likely to have a deal where the dealer gets some of the bank's money, but, yeah, this might be a way for the dealer to get even more money. I, too, think this sounds fishy, but they claim that you will save money if you decide to buy the car and are otherwise ahead as well. There might be a difference if you don't decide to buy the car or want to stop the lease part of the way through it, but I can't figure that out from this description.
If in doubt, don't do it.
posted by grouse at 11:30 AM on August 3, 2011
They're trying to screw you.
From 10,000 ft., you are getting a less desirable, less advanced, less valuable car for almost exactly the same amount of money. The car's worth at the end of the lease is an irrelevant issue for you in the context of this transaction.
At ground level, the amount of depreciation is almost certainly less not more for the 2011 model because the 2011 car starts out being worth less.
They probably made it come out about the same because the bank (or acceptance entity) approved you for a certain monthly payment or less, and by an almost miraculous coincidence, the monthly payment in the original contract must have been near the maximum they could squeeze out of you.
Cancel this contract and find a lessor who doesn't play these games-- bait and switch, in this case.
If they give you static, threaten to go to the state Attorney General.
posted by jamjam at 12:07 PM on August 3, 2011
From 10,000 ft., you are getting a less desirable, less advanced, less valuable car for almost exactly the same amount of money. The car's worth at the end of the lease is an irrelevant issue for you in the context of this transaction.
At ground level, the amount of depreciation is almost certainly less not more for the 2011 model because the 2011 car starts out being worth less.
They probably made it come out about the same because the bank (or acceptance entity) approved you for a certain monthly payment or less, and by an almost miraculous coincidence, the monthly payment in the original contract must have been near the maximum they could squeeze out of you.
Cancel this contract and find a lessor who doesn't play these games-- bait and switch, in this case.
If they give you static, threaten to go to the state Attorney General.
posted by jamjam at 12:07 PM on August 3, 2011
jamjam, the way I read the question, the asker already took delivery on the car.
posted by grouse at 2:09 PM on August 3, 2011
posted by grouse at 2:09 PM on August 3, 2011
I didn't read it that way, grouse, but after looking it over again, I think you are probably right.
That could take easily walking away from the deal off the table.
My answer implicitly assumes that all the figures in the contract, not simply the value of the car at the end of the lease, are appropriate for a 2012 model rather than a 2011 model.
If that's wrong, then they may not be trying to pull a fast one, but I think Naberius ought to investigate the possibility thoroughly.
If they are on the up and up, it may be that the "rent" is closely tied to an interest rate, and that, like interest rates, it doesn't go up or down smoothly but in jumps, and that they could only reduce it by $3000 if they were going to reduce it at all, and then adjusted other values to make the monthly payment come out the same.
posted by jamjam at 5:05 PM on August 3, 2011
That could take easily walking away from the deal off the table.
My answer implicitly assumes that all the figures in the contract, not simply the value of the car at the end of the lease, are appropriate for a 2012 model rather than a 2011 model.
If that's wrong, then they may not be trying to pull a fast one, but I think Naberius ought to investigate the possibility thoroughly.
If they are on the up and up, it may be that the "rent" is closely tied to an interest rate, and that, like interest rates, it doesn't go up or down smoothly but in jumps, and that they could only reduce it by $3000 if they were going to reduce it at all, and then adjusted other values to make the monthly payment come out the same.
posted by jamjam at 5:05 PM on August 3, 2011
Response by poster: Yep, I've got the car, and I'm not giving it back. I like the car. What they're telling me is that instead of entering the residual value for my 2011 model as they should, they instead used the value for a 2012 model, e.g., the guy read the wrong column or something for that number and that number alone.
But yes, the best theory I can come up with after reading responses and thinking through how the process must work is that they got the bank to okay a lower rate - either by saying they'd made a mistake and needed to lower the rate to fix it, or perhaps just because I made a pretty large down payment and have a very good credit rating. So maybe it's a lockstep amount they can reduce it by, or maybe this is what the bank went for in my particular case. But either way, the bank appears to have accepted a $3000 reduction in the total finance charge for the lease.
That being the case, I don't expect the dealership would leave that money on the table and go, "oh, no thanks, we just needed you to reduce it by $1700." They give me the $1700 they need to make things right, and then they keep the rest for themselves. If that's what's going on I figure a) it's between them and the bank, and b) they did give up a good chunk of profit up front to sell me the car so why shouldn't they get some of it back if it's offered?
On the other hand, it suggests that maybe I should have been a little more aggressive on the finance charge if the bank's willing to take less than half of what I initially agreed to. But the rate they quoted seemed in line with what my research had told me to expect.
posted by Naberius at 6:08 PM on August 3, 2011
But yes, the best theory I can come up with after reading responses and thinking through how the process must work is that they got the bank to okay a lower rate - either by saying they'd made a mistake and needed to lower the rate to fix it, or perhaps just because I made a pretty large down payment and have a very good credit rating. So maybe it's a lockstep amount they can reduce it by, or maybe this is what the bank went for in my particular case. But either way, the bank appears to have accepted a $3000 reduction in the total finance charge for the lease.
That being the case, I don't expect the dealership would leave that money on the table and go, "oh, no thanks, we just needed you to reduce it by $1700." They give me the $1700 they need to make things right, and then they keep the rest for themselves. If that's what's going on I figure a) it's between them and the bank, and b) they did give up a good chunk of profit up front to sell me the car so why shouldn't they get some of it back if it's offered?
On the other hand, it suggests that maybe I should have been a little more aggressive on the finance charge if the bank's willing to take less than half of what I initially agreed to. But the rate they quoted seemed in line with what my research had told me to expect.
posted by Naberius at 6:08 PM on August 3, 2011
Well, if they can get an extra $1300 in profit off the deal if you sign a new contract, maybe you should ask them for a big cut of that.
Still sounds fishy to me. I'd assume they're pulling a fast one until you study the documents really carefully. And maybe even then.
posted by grouse at 6:24 PM on August 3, 2011 [1 favorite]
Still sounds fishy to me. I'd assume they're pulling a fast one until you study the documents really carefully. And maybe even then.
posted by grouse at 6:24 PM on August 3, 2011 [1 favorite]
Have you called the salesman and asked him why these numbers are so odd? His ability to answer cogently might give you insight into whether he's pulling a fast one, or just trying to get the numbers to work out.
posted by Capri at 7:00 AM on August 4, 2011
posted by Capri at 7:00 AM on August 4, 2011
This thread is closed to new comments.
posted by scolbath at 8:51 AM on August 3, 2011 [2 favorites]