UNDERSTANDING DIFFERENCES BETWEEN LEASING AND BUYING A NEW VEHICLE
https://www.consumerreports.org/buying-a-car/leasing-vs-buying-a-new-car/
https://www.edmunds.com/car-buying/compare-the-costs-buying-vs-leasing-vs-buying-a-used-car.html
https://www.nerdwallet.com/blog/loans/7-lease-vs-buy-questions-right/
https://www.daveramsey.com/askdave/posts/10367
https://www.consumer.ftc.gov/articles/0056-financing-or-leasing-car
WHY ARE LEASE PAYMENTS LOWER?
When you buy a vehicle you are paying for the total cost of the car or truck. When you lease, however, you are paying for the difference in value between what the vehicle is worth when you buy it and what it is worth when you return it at the end of the lease. For example, if you buy a $10,000 car you pay the entire $10,000 (plus interest). If you lease the same $10,000 car for three years, the monthly payment will generally be calculated as follows:
- the "capitalized costs" or selling price is $10,000
- after three years, you guarantee that the value at the end of the lease ("residual value") is $5,000
- your monthly payment will be based on $5,000 (plus any lease acquisition fees, taxes or insurance charges plus interest) divided by 36 months.
WHAT ARE THE RISKS OF LEASING?
The primary risk of leasing is that the residual value of the vehicle may not be as high as you had guaranteed. If the value is lower, then you must pay the difference. That guarantee is defined differently in different leases. Some common methods are:
Mileage allowances. Typically a lease agreement will set forth a number of miles that you are allowed to drive the vehicle without paying extra charges. Typically, you may drive between 12,000 or 15,000 annually without extra charge. At the end of the lease you will pay 11-20 cents for each excess mile. For example, if your three-year lease allows 12,000 miles per year (36,000 miles for 3 years) and you drive the vehicle 46,000 miles you must pay for the excess. If your lease set excess mileage charges at 20 cents per mile you would owe 10,000 times 20 cents which equals $2,000.
Repairs. At the end of the lease you do not have to pay for "normal wear and tear." Needed repairs caused by your negligence, however, must be paid for. You are generally allowed to either get the repairs made yourself or allow the leasing company to have them made. Some leases require security deposit paid at the beginning to cover such repairs.
Open end leases. With an open end lease, the leasing company appraises the resale value of your vehicle and then compares this amount to the estimated residual value stated in your lease contract. If more money is owed to the leasing company over and above the security deposit, you must pay the leasing company. This is called a "balloon payment". If no charges are assessed, your deposit is refunded to you.
Closed end leases. Most vehicle leases are closed end. The leasing company assumes the risk that the residual value will be lower than estimated. You are responsible only for any excess mileage charges or needed repairs.
CAN I END THE LEASE EARLY?
Generally you are allowed to terminate the lease before the end of the term. Most leasing companies do, however, assess additional charges.
CAN I BUY THE VEHICLE AT THE END OF THE LEASE?
Most leases do allow you to buy the vehicle when the lease expires for a price which is set in the original lease contract. Generally you have the option to either pay cash, arrange your own financing or finance with the lease company.
WHAT LAWS GOVERN CAR LEASES IN NEVADA?
Nevada Revised Statutes (NRS) 100.137 through 100.180 govern consumer vehicle leases.
A lessor (the person who leases a car) who is also a dealer must use a lease agreement—contained in a single document—in connection with a consumer vehicle lease for a used vehicle that:
(a) Is accepted and acted upon by the lessor and any other person necessary to effectuate the lease.
(b) Contains any information required to be disclosed by the Consumer Leasing Act of 1976, 15 U.S.C. §§ 1667 et seq., and the corresponding regulations, including 12 C.F.R. Part 1013, commonly known as Regulation M.
(c) If the lease provides for the sale of goods or services, identifies and itemizes the goods sold or to be sold or services furnished or rendered or to be furnished or rendered and the price of each item of goods or services.
(d) Contains a provision that default on the part of the lessee (the person leasing the car) is only enforceable to the extent that:
(1) The lessee fails to make a payment as required by the agreement, but in no case less than 30 days after the date required by the lease agreement; or
(2) The prospect of payment, performance or realization of collateral is significantly impaired. The burden of establishing the prospect of significant impairment is on the lessor.
(e) Includes the following notice in at least 10-point bold type:
NOTICE TO LESSEE
Do not sign this agreement before you read it or if it contains any blank spaces. You are entitled to a completed copy of this agreement. If you fail to perform your obligations under this agreement, the vehicle may be repossessed and you may be liable for the unpaid indebtedness evidenced by this agreement.
(f) Limits late fees to the lesser of $15 or 8 percent of any installment amount in default for more than 10 days.
(g) Contains a term regarding residual value in substantially the following form:
Residual value is the value of the leased vehicle at the end of the lease term, as estimated or assigned by the lessor. The residual value is the amount you will have to pay if you decide to buy this vehicle at the end of the lease term.
(h) Contains a term regarding early termination in substantially the following form:
If you terminate this lease before the end of the lease term, you will be responsible for the early termination charge. The early termination charge is the amount you still owe on the vehicle under the lease agreement, commonly referred to as the adjusted lease balance, minus the vehicle’s current fair market value as estimated in the then current version of the Kelley Blue Book or its equivalent.
(i) Contains a term regarding default charges in substantially the following form:
If you default under the terms of this agreement, you will be liable for the adjusted lease balance described in paragraph (h) plus any actual costs incurred by the lessor to repossess the vehicle, prepare it for disposition and dispose of it by sale or other means minus the amounts received by the lessor from the disposition of the vehicle and the cancellation of any optional product or service you purchased as part of this agreement.
Before a lessor/dealer obtains the signature of a lessee on a consumer vehicle lease for a used vehicle, the lessor shall provide the lessee with certain disclosures. The disclosures must:
- Identify the vehicle and identify and itemize any other goods or services included in the lease and, if the lease provides for the sale of goods or services, identify and itemize the goods sold or to be sold or services furnished or rendered or to be furnished or rendered and the price of the vehicle and each other item of goods or services.
- Be provided to the lessee before they sign the lease agreement, in a form the lessee can keep.
- Contain the signature of the lessee and any other party obligated by the terms of the lease agreement.
- Contain a notice that default on the part of the lessee is only enforceable to the extent that:
(1) The lessee fails to make a payment as required by the lease agreement, but in no case less than 30 days after the date required by the lease agreement; or
(2) The prospect of payment, performance or realization of collateral is significantly impaired. The burden of establishing the prospect of significant impairment is on the lessor.
- Provide to the lessee the following notices in both English and Spanish in at least 14-point bold type:
NOTICE TO LESSEE
THIS IS NOT A SALES CONTRACT
THIS IS A LEASE. YOU ARE NOT BUYING THIS CAR. YOU WILL NOT OWN IT AT THE END OF THE CONTRACT TERM WITHOUT PAYING ADDITIONAL MONEY.
ESTE ES UN CONTRATO DE ARRENDAMIENTO. NO VAS A COMPRAR ESTE AUTO. USTED NO SERÀ DUEÑO AL FINAL DEL CONTRATO CON EL PAGO DE DINERO ADICIONAL.
NOTICE TO LESSEE
READ EVERYTHING CAREFULLY
Do not sign the agreement provided by the lessor before you read it or if it contains any blank spaces. You are entitled to a completed copy of the agreement. If there are oral promises not included in the written agreement, the written agreement will prevail. If you fail to perform your obligations under the agreement, the vehicle may be repossessed and you may be liable for the unpaid indebtedness evidenced by the agreement.
NOTICE TO LESSEE
THERE IS NO COOLING-OFF PERIOD
Nevada law does not provide for a “cooling-off” or other cancellation period for vehicle leases. Therefore, you cannot later cancel the lease simply because you change your mind, decide the vehicle costs too much, or wish you had acquired a different vehicle. You may cancel the lease only with the agreement of the lessor or for legal cause, such as fraud.
If a lessor who is a dealer fails to obtain the signature of a lessee on the above disclosures before obtaining the signature of the lessee on a consumer vehicle lease for a used vehicle, the consumer vehicle lease will be deemed a retail installment contract for the sale of the vehicle.
The above laws are found in NRS 100.139.
In cases where the lessee's liability at the expiration of an open-end lease is based on the residual (remaining) value of the vehicle, and no agreement has been reached on how to establish this value, the lessor/dealer can obtain written bids from third parties to determine it. The lessee should be notified of this in writing and given the chance to submit their own bid for the vehicle. NRS 100.145-100.165. If the dealer does not follow these laws, the dealer will not be able to recover any deficiency from the lessee.
Lastly, any violation of these laws is considered a deceptive trade practice and the lessee can take legal action against the lessor. The lessee may be entitled to any damages the lessee has sustained, any equitable relief that the court deems appropriate, costs and reasonable attorney’s fees. NRS 100.180.
DOES THE LAW LIMIT THE AMOUNT WHICH MAY BE CHARGED?
Generally no. There's one exception, however. "Balloon payments" are presumed to be excessive if they exceed three times the average monthly payment in an open end lease (unless you agree to make a higher payment or you use the property more than the average). The leasing company may seek a larger payment by going to court, where it has the burden to prove that its original estimate, although wrong was reasonable and made in good faith. The leasing company must pay your attorneys fees in such a lawsuit, whether or not it wins.15 U.S.C. 1667b(a).
In an open end lease, if you disagree with the leasing company's determination of residual value, you may obtain at your own expense, a professional appraisal of the leased property by an independent third party agreed to by both you and the leasing company. That appraisal is final and binding on you both. 15 U.S.C. 1667b(c).
There is no specific limit on the penalties or other charges for delinquency, default or early termination which may be specified in lease. Such charges, however, must be "reasonable" in light of the anticipated or actual harm caused by the delinquency; default or early termination; the difficulties of proof of loss and the inconvenience or difficulty in otherwise obtaining an adequate remedy. 15 U.S.C. 1667b(b).
WHAT RESTRICTIONS DOES THE LAW PLACE UPON THE ADVERTISING OF LEASES?
If the leasing company advertises the amount or number of payments or that there is no down payment , the ad must also mention several other important terms. Included are (a.) the total regular payments, (b.) your responsibilities at the end of the lease, and (c.) whether or you may purchase the property. This is to make sure you get enough information from the advertisement to understand the offer and compare it with others. 15 U.S.C. 1667c.
WHAT ARE THE PENALTIES IF THE LEASING COMPANY VIOLATES THE LAW?
Under federal law, if the leasing company fails to give you the required information, or does so improperly, you may sue for damages equal to 25% of the total of the monthly payments (but not less than $100 nor more than $1000) plus any actual damages which are suffered. 15 U.S.C. 1667d(b) & 1640 (a)(2) (A). If an advertisement violates law you may sue the leasing company for your actual damages. 15 U.S.C. 1667d(b). In any successful lawsuit you may also recover your court costs and reasonable attorneys fees. 15 U.S.C. 1640 (a) (3). You must sue within one year of the termination of the lease agreement. 15 U.S.C. 1667d(c). The law also provides criminal penalties for violators.
Under Nevada law, any violation of the laws governing consumer vehicle leases described above is considered a deceptive trade practice. The lessee can take legal action against the lessor. The lessee may be entitled to any damages the lessee has sustained, any equitable relief that the court deems appropriate, costs and reasonable attorney’s fees. NRS 100.180.
IS THE DEALER REQUIRED TO DISCLOSE WHETHER THE VEHICLE IS A "SALVAGE VEHICLE"?
Yes, effective October 1, 2003, dealers must:
- disclose in writing any information that the dealer knows or reasonably should know concerning whether the vehicle is a "salvage vehicle" before executing a contract of sale or a long term lease
- provide a copy of the disclosure to the buyer and
- retain the written disclosure in the dealer's records.
A "salvage vehicle" means a motor vehicle that at any time has been declared a total loss vehicle, (which means the cost of repairs are more than 65% of the vehicle's Fair Market value), flood damaged vehicle, non-repairable vehicle or had salvage or a similar word placed on any title issued for the vehicle. Moreover, a dealer shall not remove or conceal a marking on a title which indicates that the vehicle is a salvage vehicle.
If you are harmed by a dealer who violates the new law, contact an attorney immediately. Violators may be charged with a crime and ordered to pay restitution to the victim. A person who violates the new law, with the intent to defraud, is liable to any purchaser or lessee of a motor vehicle who is harmed by the violation for either three times the actual damages, $5,000 or actual damages plus punitive damages allowed by the court, whichever is greater. If you win a lawsuit, you can recover costs plus reasonable attorney's fees.
The Federal Trade Commission (FTC) is responsible for enforcing the Consumer Leasing Act. You may contact the regional office in San Francisco at (415) 744-7920. If you have been damaged by a violation you may wish to contact an attorney.
