Car dealers and leasing and gullible parents

[Tired_and_Cranky]

MamaZappa, I think there is a misunderstanding here. The residual value on the car is determined when the lease contract is signed. A high residual value on a lease is a great thing. The higher the residual value, the lower the lease payments will be, all other things remaining equal. In the real world of regular cars, there is no such thing as a residual value that is higher than the purchase price of the car. I think what you were calling the residual value is something else. It sounds like you are playing a game of telephone with your in-laws when they don’t even speak the language they are hearing.

If your in-laws owe a bunch of money at the end of the lease, the most likely causes are the disposition fee, exceeding the mileage cap on the lease, and excess damage. The disposition fee is specified in the lease contract, and it’s just a fee for returning the car.

All leases come with a mileage cap. Most leases only allow you to drive 12,000 miles per year. Some people get leases that allow only 5,000 or 6,000 miles per year in order to get a lower monthly lease payment. Then, if they drive more than that cap, they will owe an excess mileage fee that is specified in the lease contract. On a mainstream mid-size car, it’s probably 15 cents or so for every mile that they drive over the cap. On a high-end luxury car, it might be more than 30 cents per mile.

The lessee is also be responsible for damage to the car above normal wear and tear. There are standards in the lease contract for how much damage is considered normal wear and tear. If their car is in crappy shape after the accidents and their other abuse, they will have to pay for the excess damage. There is some wiggle room on the excess damage costs. If your in-laws are close to the end of their lease, they (or perhaps you) can shop the car around to the brand’s dealers in your area. Tell them you are exploring your options for the car, including keeping it, trading it in on a new lease, or just turning it in. Ask them how much your in-laws would owe if they you just turned it in. Depending on how different dealers assess the damage, they might give you different amounts that they would owe. Be sure to get the fees itemized so you can understand whether one dealer is including all the fees while another dealer is inadvertently leaving out the disposition fee, for example.

If they are terminating the lease early, they may also owe early termination fees and remaining lease payments. Again, check the lease contract. Sometimes, you can negotiate these fees away with the dealer, particularly if you are getting another new car from the dealer. It doesn’t sound like that’s your plan.

It is possible (if not very likely) that the car is actually worth more than the residual value and the balance of the fees that they owe. In that case, the dealer might even offer to give your in-laws some money back at the end of the lease when they turn the car in or give them credit as part of the down payment on a new car.

Good luck.

[Balthisar]

@Really_Not_All_That_Bright

When the vehicle is the subject of a lease or loan, the owner or lender is definitely going to have to be notified if the insurance policy is cancelled. And then they can come and repossess the vehicle.

Most likely they sell you expensive, mandatory insurance at inflated rates.

[Mama_Zappa]

@Tired_and_Cranky

MamaZappa, I think there is a misunderstanding here. The residual value on the car is determined when the lease contract is signed. A high residual value on a lease is a great thing. The higher the residual value, the lower the lease payments will be, all other things remaining equal. In the real world of regular cars, there is no such thing as a residual value that is higher than the purchase price of the car. I think what you were calling the residual value is something else. It sounds like you are playing a game of telephone with your in-laws when they don’t even speak the language they are hearing.

If your in-laws owe a bunch of money at the end of the lease, the most likely causes are the disposition fee, exceeding the mileage cap on the lease, and excess damage. The disposition fee is specified in the lease contract, and it’s just a fee for returning the car.

All leases come with a mileage cap. Most leases only allow you to drive 12,000 miles per year. Some people get leases that allow only 5,000 or 6,000 miles per year in order to get a lower monthly lease payment. Then, if they drive more than that cap, they will owe an excess mileage fee that is specified in the lease contract. On a mainstream mid-size car, it’s probably 15 cents or so for every mile that they drive over the cap. On a high-end luxury car, it might be more than 30 cents per mile.

The lessee is also be responsible for damage to the car above normal wear and tear. There are standards in the lease contract for how much damage is considered normal wear and tear. If their car is in crappy shape after the accidents and their other abuse, they will have to pay for the excess damage. There is some wiggle room on the excess damage costs. If your in-laws are close to the end of their lease, they (or perhaps you) can shop the car around to the brand’s dealers in your area. Tell them you are exploring your options for the car, including keeping it, trading it in on a new lease, or just turning it in. Ask them how much your in-laws would owe if they you just turned it in. Depending on how different dealers assess the damage, they might give you different amounts that they would owe. Be sure to get the fees itemized so you can understand whether one dealer is including all the fees while another dealer is inadvertently leaving out the disposition fee, for example.

If they are terminating the lease early, they may also owe early termination fees and remaining lease payments. Again, check the lease contract. Sometimes, you can negotiate these fees away with the dealer, particularly if you are getting another new car from the dealer. It doesn’t sound like that’s your plan.

It is possible (if not very likely) that the car is actually worth more than the residual value and the balance of the fees that they owe. In that case, the dealer might even offer to give your in-laws some money back at the end of the lease when they turn the car in or give them credit as part of the down payment on a new car.

Good luck.

1. With their first lease the “residual value” exceeded the car’s initial value (i.e. dramatically more than it would have cost to pay list price for it 4 years earlier). I’m pretty sure they misunderstood, but they never showed us the paperwork. Basically they thought they’d have to pay 30,000 dollars to keep a car that retailed for 22,000 4 years earlier.
2. The “disposition fee” must be what they were all talking about. WTF??? Will they not take the car back if you don’t pony that up? Hopefully if I am ever unfortunate enough to need to lease a car, I’ll be able to negotiate that the hell away.
3. Mileage: not an issue. The car they have now has less than 10,000 miles, I think.
4. I’d be shocked if a dealer gave them money back because the car was worth more than expected, even if it was (likely the case with their previous one).
5. Excess damage, now that’s a worry. It’s been in 3 accidents. Arguably, their insurance ought to cover anything there, but I don’t trust those dealers (or the parents’ ability to tell the dealer to get bent).
6. Early termination: That’s what they did with the previous one. Not sure it was the same dealership or not, but I know the remaining payments on the old car were rolled into the cost of the new one.