Recs

0

So You Blew It

I've seen you before. You're my neighbor. The guy who bought a house that was too big and toys that you never play with. But who could blame you? You owned a house! You were rich! Housing prices would forever climb!

Till, that is, they fell.

Now you're renting a two-bedroom apartment above the local taco joint. It's clean living, if rats and cockroaches are your idea of good company.

You'd live out of your car if Mercedes made a convertible with a backseat that fit anyone larger than an infant or Nicole Richie. But you can't get rid of it, either. You're stuck in a lease.

Come see the dopes
Welcome to the club, pal. Have a seat. Find your "I was too stupid to read the fine print and all I got was this lousy T-shirt" T-shirt in the back. Harsh? Sure. Fire back here if doing so will make you feel better.

Finished? Good, because you need to hear this. Leasing a car is almost guaranteed to cost you money. I'd explain why, but Foolish colleague John Rosevear already did that here. All I'll add is there's a very good reason that Ford (NYSE: F  ) , General Motors (NYSE: GM  ) , and Toyota (NYSE: TM  ) offer such big incentives to lease their cars.

Let's assume, then, that you're in a lease and you want out. What options do you have? Three, really:

1. Pay a massive early-termination fee. And I do mean massive. Here's how the Federal Reserve's consumer guide puts it: "The charge may be up to several thousand dollars and may exceed the amount you would have paid if you had completed the lease." Oh goody.

2. Find another sucker. Turns out there are services that will allow you to transfer your lease to someone else. But this isn't cheap, either. One service I found -- LeaseTrader.com -- can charge as much as $800.

3. Stick it out. Probably your best bet since you'll face no early termination fee. And, if you're careful, you can avoid both mileage and upkeep charges.

But don't tell that to LeaseTrader. An email I received from the company tells the tale of a Newport Beach, Calif., customer who (sniff) was having a hard time finding a mortgage because of the lease on his Mercedes.

You know what? Boo-freaking-hoo. If you're dumb enough to lease a Mercedes you can't afford, you're probably not ready to own a home.

Are you smarter than a carmaker?
Before you lease, it's worth understanding how car dealers make money. There are three ways:

  • By moving inventory.
  • By financing.
  • By selling parts and service.

Leasing is a financing service because no inventory has been sold. That's trouble for the carmaker. Everything that sits on the lot is a money-loser. So, when you lease a car, a dealer has to get more -- a lot more -- than it could cost to take it back. Still think you're getting a good deal?

The Foolish bottom line
Everyone runs into trouble from time to time. For those times, a service like LeaseTrader might be useful. But, before you use such a service, ask yourself: Why are you making the trade? Is it to be like Mr. Newport Beach and buy a house you can't afford?

Nah. You're too smart, and too Foolish, for that, right?


Read/Post Comments (0) | Recommend This Article (0)

Comments from our Foolish Readers

Help us keep this a respectfully Foolish area! This is a place for our readers to discuss, debate, and learn more about the Foolish investing topic you read about above. Help us keep it clean and safe. If you believe a comment is abusive or otherwise violates our Fool's Rules, please report it via the Report this Comment Report this Comment icon found on every comment.

Be the first one to comment on this article.

Sponsored Links

Leaked: Apple's Next Smart Device
(Warning, it may shock you)
The secret is out... experts are predicting 458 million of these types of devices will be sold per year. 1 hyper-growth company stands to rake in maximum profit - and it's NOT Apple. Show me Apple's new smart gizmo!

DocumentId: 537506, ~/Articles/ArticleHandler.aspx, 10/24/2014 4:19:00 AM

Report This Comment

Use this area to report a comment that you believe is in violation of the community guidelines. Our team will review the entry and take any appropriate action.

Sending report...

Tim Beyers
TMFMileHigh

Tim Beyers first began writing for the Fool in 2003. Today, he's an analyst for Motley Fool Rule Breakers and Motley Fool Supernova. At Fool.com, he covers disruptive ideas in technology and entertainment, though you'll most often find him writing and talking about the business of comics. Find him online at timbeyers.me or send email to tbeyers@fool.com. For more insights, follow Tim on Google+ and Twitter.

Today's Market

updated 7 hours ago Sponsored by:
DOW 16,677.90 216.58 1.32%
S&P 500 1,950.82 23.71 1.23%
NASD 4,452.79 69.95 1.60%

Create My Watchlist

Go to My Watchlist

You don't seem to be following any stocks yet!

Better investing starts with a watchlist. Now you can create a personalized watchlist and get immediate access to the personalized information you need to make successful investing decisions.

Data delayed up to 5 minutes

Related Tickers

10/23/2014 4:00 PM
F $14.40 Up +0.27 +1.91%
Ford CAPS Rating: ****
GM $30.93 Down -0.38 -1.21%
General Motors CAPS Rating: **
TM $113.41 Up +1.14 +1.02%
Toyota Motor Corp… CAPS Rating: ***

Advertisement