As a dealer, you may have found that customers have some interesting notions about leasing. Or maybe you’re in the finance arena and you’ve observed that people are in the dark about how the numbers work.

Enter Scot Hall, who you might say wants to do some auto lease myth busting.

The executive vice president of Swapalease.com, a company that facilitates consumer lease transfers, recently shared with Auto Remarketing a list of six of what he says are common myths about leasing. It’s a list he’s cultivated during his time with Swapalease and going back to his days in automotive retail.

So how does he think such myths develop and perpetuate? Is leasing just inherently complicated?

“I think most people get the idea of leasing, generally speaking,” he said. “From there, it becomes kind of a black box: ‘How did you come up with that monthly payment? I understand the loan is a lot like my mortgage: I’m gonna finance this much, I’m gonna pay this interest, I’m gonna finance it for this long.’

“But leasing is a little bit more sophisticated in how it’s calculated, and I think that’s where a lot of the ignorance in leasing comes from,” Hall continued. “It’s not that people can’t understand it; it’s just that they’ve never been taught it. The monthly payment is almost like — I don’t want to call it a surprise — but it’s something that they’re just not sure how to calculate; therefore, I think a lot of myths are created.”

 Myth: I don’t want to lease because I want to own my car.

This is the one Hall says he has encountered most often.

The reality, he said, is that most people who buy will trade in their car before completing the loan term, meaning few people will end up actually “owning” their car.

“I find it kind of humorous,” Hall said. “If you’re buying a car on a 5-, 6, 7-year loan, you’re not at any type of a positive equity standpoint in that car usually until year four or five, depending on the type of vehicle. If you’re so intent on owning a vehicle, you can’t trade it in today because you’re in a negative equity situation. I’m not sure how much somebody’s thought that through.”

Related to this, said Justin Leach, a spokesman for Toyota Financial Services, is the misconception leasing is just like renting a car.

“Not true,” he told Auto Remarketing. “The customer is still financing, still requires certain credit scores to qualify, still requires a contractual obligation for a specified period and it still shows up on credit reports.

“This belief can lead to another myth: ‘If you die before the lease is up, they just take the car back.’ Not true. As with any debt, the estate or co-signor, if there is one, has an obligation to the creditor,” Leach continued.

Myth: Wear and tear will get you at lease end.

Not so fast, Hall said. Many brands are interested in keeping lessees in the family, so to speak. As such, some brands may be more than willing to forgive varying degrees of wear and tear if and when you agree to lease or purchase with them again.

That being said, “Leasing companies don’t expect the car to come back mint.”

BMW, for example, “does a nice job with this,” he said. “They have a tool where if a ding or scratch fits in this circle, it’s not a problem.”

And some companies offer an insurance policy that can be purchased with many leases that protect against excessive wear and tear, Hall pointed out.

Leach echoed Hall’s sentiments about wear and tear, adding that Toyota offers an Excess Wear and Use Protection Plan.

“To further put our customers at ease, near the end of the lease term, we offer a complimentary pre-inspection,” he continued. “An inspector will come to the customer’s home or business and provide a thorough evaluation and let the customer know if there is any damage that could be considered excess wear and use.”

Thomas King, vice president of PIN OEM Operations, Media and Marketing at J.D. Power, agreed that everyday wear and tear is nothing to fear. In the event of more significant damage, he pointed out that you’ll end up paying whether you lease or own.

If you own a vehicle with damage that you want to trade in or sell, you have a choice between repairing that vehicle or selling it as is, King said. You’ll likely get less money with the second option. With leasing, you are simply compelled to fix it or pay for the damages.

“Ultimately damage degrades the value of the vehicle,” King said, “whether you’re giving it back to the leasing company or you try to trade it in or sell it privately. Either way, you’re going to lose value if there’s excess wear and tear.”

Myth: Captive is the better way to finance a lease.

“There’s some truth to this,” Hall was quick to point out. “It’s just not always true. There are plenty of times when the captive financier is a good bet. However, some captives won’t provide full flexibility in lease terms, which can cost a lot of money at the end of the lease.

“When you’re dealing with a captive, they’re not only responsible for the financing, they’re responsible for moving the metal off the lot,” he explained. “In many cases, the captive financing is more attractive. The point we’re trying to make is, it’s not true 100 percent of the time, and always take a look at what Option B might be as well.”

What if you need to get out of your lease midway through?

 “There may be a captive finance company out there that is not real lease-transfer friendly.” Hall said. “So if you need to get out of that lease down the road, it can be very problematic or expensive to get out of that lease.

“Let’s say that going through the captive finance company might cost you $300 a month on a lease payment. A national bank leasing company might cost $310 a month. I would argue that if the latter had a very good transfer program, offering the lessee more flexibility, that $360 insurance policy is a heck of an insurance policy to have if you need to get out of that lease early.”

According to King, “Captives are typically the most competitive leases you can get. There are exceptions, of course. It comes down to how aggressive does the financial institution want to be in terms of leasing that vehicle? How much do they think it’s going to be worth, and that’s what’s going to drive the lease payment.”

Myth: The cheapest monthly payment is best for your wallet.

A lower monthly payment certainly is more appealing than a higher one — it’s just not always the best, Hall said.

Often times, asking for the lowest allotment of miles will result in a lower monthly payment. But running over on your miles can end up costing far more than if you structured lease terms with more miles on the front end, which would mean a higher monthly payment.

“Just focusing strictly on the mileage, it doesn’t make sense to shortcut that or you’re going to end up paying in the end,” Hall said.

King pointed out that people need not shy away from leasing just because they think they drive too many miles.

“One of the comments you often hear is, ‘Leasing is interesting, but I drive too many miles to lease,’” he said.

“That’s because folks are thinking about the typical leases they see advertised, somewhere between 10,000 and 15,000 miles,” he continued. “They don’t realize there are options available for high mileages. Sometimes people just focus on the advertised message and don’t necessarily explore the leasing options that are available to them.”

Myth: Pre-owned cars can’t be leased.

This is actually two myths in one: pre-owned cars can be leased — and this isn’t a new phenomenon.

“Pre-owned leasing is something that’s coming full circle,” Hall said. “It used to be not mainstream, but relatively common before the financial collapse. It’s not a new thing.”

Used leasing is becoming more popular, and lending arms such as Ally and Toyota have recently introduced structured used lease programs for customers.  

According to Tim Russi, president of auto finance at Ally, more than 68 different vehicle models are  eligible for Ally's Pre-Owned SmartLease.

“Ally’s Pre-owned SmartLease is an attractive option for consumers across a broad range of ages, lifestyles and backgrounds who want more flexibility and control over their vehicle experience,” Russi said in emailed comments. “We believe the product has appeal across the customer spectrum, from consumers who want to lease a high-end, luxury vehicle, to others who take a more practical view of transportation and may want to drive a particular car for only a short time.
 
“As vehicle technology advances more quickly, the ability to lease a used vehicle may also appeal to consumers who are looking to upgrade every few years, similar to the way they upgrade other technology like smart phones,” he continued.

Myth: Subprime candidates aren’t good for leasing.

Hall says there are a handful of companies — mostly regional — that are offering used-car leasing to subprime candidates.

In fact, says Hall, giving subprime candidates a lower monthly payment in a shorter amount of time (two years, for example), would give them a better chance at making the payment and satisfying the term, as opposed to a five- or six-year term that involves refinancing in the middle. 

“The problem with subprime financing in general,” he said, “is special financing on the retail side traditionally means somebody puts up a relatively large down payment, pays a high interest rate, isn’t getting a lot for their money, and is going to be paying for quite some time. It’s gonna be a long time before somebody has an equity position in that car and is able to refinance it and really make their monthly payment affordable and more reasonable once they’ve shown they can do it.  

“Why would you not want to lease them a vehicle? They still have to qualify at some level of credit, you can still ask for some money down. You can put people on much shorter terms to help them rebuild that credit,” he said. “From both a manufacturer as well of dealer standpoint, you’re gonna get all the general benefits of leasing. You’re gonna see that client more often, you’re going to build loyalty.

“Effectively you’re going to sell that individual twice as many cars in most cases. You’re leasing a vehicle for three years as opposed to financing for six, you’re going to see that customer a whole lot more frequently. They’re going to be more appreciative of what you’ve done for them as opposed to tying them up in long-term, high interest rate financing. I think it’s something people really need to take a look at in the industry and really give it some consideration.”

Of course, there is the potential for a higher default risk with lower credit scores — but that applies equally whether they’re financing or leasing, King pointed out.

King went on to say that just as misinformation spreads by word of mouth, so, too, do positive experiences. As leasing has exploded in popularity, and as more and more people tell their friends and neighbors about favorable deals and good experiences, this should help mitigate some lingering anti-leasing myths.