Understanding Car Lease Ads and Commercials

Good Lease Deals or Not?

Let's look at an actual car lease ad

Here is an actual newspaper promotional advertisement for some lease deals from BMW. We'll focus on the ad for the BMW Z4 2.5. This ad is typical of most lease ads for other vehicle makes/models. Sometimes the ads are for local deals, sometimes regional or national lease deals.

Are the advertised lease deals actually good deals? How can you tell? What do you need to watch for in the fine print?

BMW Z4 newspaper advertisement

What the fine print says

What the fine print means

36 month closed-end lease - This is a 3-year consumer "walk-away" lease, not an open-end business lease. You have the right to return your car at the end of the lease and walk away, paying only for excessive miles, damages, and any other fee specified in your lease contract. Watch out for unusually long lease terms, more than 48 months, that only serve to reduce the advertised monthly payment amount.

Acquisition fee included - This fee is always included in the financed cost (net cap cost) of the vehicle. It's a kind of "hidden" fee, almost never actually specified, unless you ask, and amounts to a few hundred dollars on most cars, but as much as $1000 on high-end luxury cars. For this car, the fee is probably about $795. The fee, sometimes called a "bank fee," is an administrative charge by the lease company. It is not negotiable.

10,000 miles per year allowed - This lease deal is based on the assumption that you'll drive no more than 30,000 miles total over the life of the lease. If you drive more miles, you will be charged for each additional mile at a rate that is not specified in this ad (some ads disclose the rate). Typically, the rate will be in the range of $0.15 - $0.25 per mile. Watch out for ads with unusually low mileage limits, such as 7500 miles/year, that help create a lower payment to make the ad more attractive.

Full maintenance for 4 years/50,000 miles included - This is not typical with leases, but is often offered with more expensive vehicles. Scheduled maintenance can be an expensive addition to the cost of driving any vehicle, especially high-end models such as BMW. Therefore, the fact that this service is free with this lease deal makes the deal much more attractive.

All lease plus use tax - The wording here would have been clearer if it had said, "Stated monthly lease payment amount does not include sales tax (use tax)." Therefore, you must add sales tax (your local tax rate percentage) to the monthly payment amount shown in the ad. This will result in your total monthly payment amount.

$2500.00 cap reduction - Sometimes called "cap cost reduction," this is the cash down payment required to get this deal. Many lease deals do not require cap cost reduction. Be careful about reducing or increasing this down payment amount because it gives the dealer the opportunity to change the deal in his favor in a way that may be difficult to detect. You may use a trade-in vehicle or rebate, if any, to provide credit for some or all of this down payment amount. In most states, you'll also pay sales tax on this amount.

First payment, security deposit, tax, title fees due at inception - In addition to the $2500 down payment, you will also need up-front cash to pay your first monthly lease payment, a security deposit (typically about the same amount as your monthly payment), sales tax on your down payment amount, and state/local vehicle tag/registration fees. These are all normal for leases.

With approved credit - Most advertised lease deals such as this one require that you have an excellent credit score. If your credit rating is not acceptable because of previous bankruptcy, late bill payments, or high debt-to-income ratio, you may be either turned down for this deal, or offered another deal that is less attractive (more expensive).

Subject to prior sale - This can be a legitimate condition or can be used as a "bait-and-switch" ruse. If the ad specifies a stock number, as this ad does, it means the dealer can claim that the deal was only for that specific vehicle, and that the vehicle has already been sold or leased prior to your arrival. It is very possible that the dealer only has a few of the type of vehicle being offered and, if the promotion is a success, there could actually be none remaining by the time you visit the dealer's lot.

Prices good through May 31 - This may be true, or not. Obviously, the dealer is attempting to put a little pressure on you to act soon but often the arrangement with the lease company actually does have a specific time period, especially if it's a manufacturer's finance company that's involved in the deal.

What's not stated in the ad

Newspaper and TV lease ads don't typically tell the whole story. They may specify the vehicle's MSRP, but don't tell you the price that the lease is based on.

They don't tell you about the money factor or interest rate on the lease. Some specify the lease-end residual value, others don't. They typically don't mention the acquisition fee that is a part of all leases.

They may not be specific about the model vehicle being offered, or the exact equipment on the vehicle. This means the deal vehicle may not be exactly what you want.

How do you determine if this is a good deal?

With the information provided in this BMW ad, it is somewhat difficult to determine if the BMW Z4 lease deal is good or not by simply looking at the details of the ad. Monthly payment, by itself, is not a good measure.

However, the unique Lease Evaluator calculator in our Lease Kit (www.leaseguide.com/leasekit.cfm) was designed specifically to evaluate any lease deal for any vehicle by analyzing the basic factors of the deal.

So, let's evaluate this lease deal

We ran all of the lease deals in this ad through our Lease Evaluator calculator and here is the actual screen shot of the output for the advertised BMW Z4 lease deal:

Lease Evaluator screen shot - BMW Z4 $385/mo deal

As you can see, the advertised $385 lease payment for the BMW Z4 is considerably better than the $454 good deal, and only slightly worse than the best deal we could calculate for this vehicle.

In fact, the deal is outstanding. Anyone looking at leasing a BMW Z4 would do well to go for this deal. Just make sure your lease contract accurately reflects the figures quoted in the advertised deal.

Evaluating the other three BMW deals in the ad with our Lease Evaluator had similar results. They are all excellent deals. In fact, the $489 deal on the BMW 530i is even better than the best deal scenario we calculated for this vehicle. Not surprising, given the sluggish market, plentiful supply of vehicles, and heavy competition for these vehicles.

In conclusion, many advertised car lease deals are well worth your consideration as long as you understand the "fine print" and can live with any restrictions that may go along with the deal.

And, yes, you have to be able to evaluate whether it's actually a good deal or not. Just because the ad says it's a good deal doesn't necessarily mean it's really a good deal.

For more, see LeaseGuide.com