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Auto loans generally better than used car leases

[Apr 4, 2012.]


The leasing of motor vehicles has been popular for ages, and can be good for both dealerships and customers. However, for a new breed of leases -- those aimed at those with poor credit who are looking for used cars -- that doesn't apply. Dealers often profit excessively at the expense of their customers.

Money-making machines

On Friday, The Los Angeles Times carried an exposé of this increasingly common form of vehicle leasing. As part of that, it published online a document that seeks to sell to dealers the advantages of the so-called "Lease Here Pay Here" (LHPH) system. The sales points included:

  1. Agreements aren't subject to usury laws so dealers can charge what they like.

  2. Repo can be carried out at will because the vehicle's title remains with the dealer.

  3. If the customer goes bankrupt, the dealer simply repos the car with no loss.

  4. High origination fees are "profit straight to your bottom line."

  5. Great tax advantages for the dealer.

You can view on YouTube a video that similarly tries to sell LHPH to dealers.

When leases are nooses

That point about title staying with the dealer is important. The Times tells of one St Louis woman who fell behind with her lease payments because she was paid late one week. When she went to her Ford Taurus one evening it wouldn't start. The dealer had remotely (and perfectly legally) disabled her ignition.

Similarly, there's no legal obligation on dealers to give formal notice of a repo action, even if state laws would normally require one. In fact some dealers claim that those who still have their cars when they're behind with their payments are committing grand theft auto because they have in their possession a vehicle that belongs to someone else. Stand by for the video game.

The Times also posted online the lease agreement of Michael Yslas of Lakewood, Calif. In August 2010, Yslas took on a 2001 Chevrolet Silveraro with 139,230 miles on the odometer. For that, he made a $1,500 downpayment and then made monthly payments of $411.56. Your blogger knows little about used-vehicle values, but that sounds like an awful lot of money for such an elderly and worn truck.

Auto loans usually better?

These LHPH deals have multiplied in recent years, presumably because people with poor credit found it difficult to access mainstream auto loans. But things have changed now, and finance is much more widely available.

If you need to change your vehicle, don't sign up for an expensive LHPH agreement before you've checked out your all alternatives. To start with, find competitive quotes for auto loans online.


About Author:

Peter Andrew has been writing about -- and for -- business for more than two decades. For the last couple of years, he has found himself increasingly specializing in the U.S. financial sector.

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