New-Car Misconceptions

What Are the 10 Most Misunderstood Things About New-Car Buying and Leasing?

Over the years, we’ve seen and heard practically all of the things that are most often misunderstood about car buying and leasing. Let’s identify them and address them here.

Car companies such as Ford or Honda own and operate their own dealerships

Not true. All new-car dealers are independent businesses, authorized and franchised, but not owned or operated by big car manufacturers. In fact, dealer protection laws in all states specifically prohibit car manufacturers from owning or running dealerships. Currently, there are no manufacturer-owned stores (Tesla may be an exception in some states). Car dealers buy their vehicles at wholesale price from their manufacturer, and sell at retail price, just like most other businesses.

Car dealers finance car loans and leases

Not true. Car dealers are not banks or finance companies. They do not provide loans or leases to customers. They do not approve loans and leases. They do, however, arrange financing for customers as a service. Most dealers have “captive” finance companies or banks with which they partner to provide customer financing. Even though dealers often give customers the impression they are approving and supplying car loans and leases, they are not.

Dealers can’t legally change a loan or lease deal, or ask that a car be returned

Not true. If a customer has poor credit, a dealer may have difficulty finding a finance company or bank to approve a loan or lease deal. If this happens, the finance company can ask for changes to the deal, such as a higher interest rate or larger down payment — or they car refuse the deal altogether and inform the dealer that he should get his car back from the customer. Upset customers often feel they’ve completed a deal and the dealer is obligated to stick with it, regardless. However, if a dealer can’t be paid for his car by the finance company, the car still belongs to him, not the customer.

There is a 72 hour or 3 day right-of-return law that allows car buying/leasing customers to change their mind

Not true. There is no such law. This misconception comes from there being a Federal Trade Commission 3 day “cooling off” period for door-to-door sales and certain other types of sale — but not to automobile sales or leases. California provides an optional 2-day return policy that is offered for a fee.

Car leasing is only good for businesses

Not true. There are consumer leases (“closed-end”) and business leases (“open-end”), which are two very different types of leases, for two different purposes. Consumer leasing is very popular — almost a third of all new vehicles are currently leased — but is not right for some people. See this article, Who Should Lease for more details.

Leasing is like renting, you throw your money away

Not true. Although leasing shares some characteristics with renting, the two concepts are quite different and shouldn’t be compared. We spend a lot of time and words on this web site explaining leasing to help eliminate this common misunderstanding. You can start with our article, Lease vs Buy for more details.

Because leasing is like renting, credit is not important

Not true. Leasing is not renting, it’s a form of financing similar to a loan. Therefore credit is very important, and usually more important for leasing than for buying with a loan.

Leasing is about the same for all car makes and models that are similarly priced

Not true. Car makes and models that have the best (highest) lease-end residual values make the best (cheapest) leases, even if the prices are exactly the same. See our Lease Kit for Lease Ratings for all car makes and models.

Dealers make the same deal for the same car to different customers

Not true. In fact, the same car is typically sold to different customers for all different prices. Clearly, customers who are educated, have good financial savvy, have done their car-buying homework, and are skilled negotiators will always get better prices, not because dealers like them better, but because they know the price they should pay and know how to get that price, whether it be by tough haggling or by being aware of manufacturers’ special ready-made deals.

There is one auto insurance company out there that has the best rates for everyone

Not true. There will always be one insurance company that has the best rates for a particular individual, of a particular gender, who lives and drives in a particular city and state, for a particular vehicle make/model. However, that same company will almost never be have the cheapest rates for a different individual, different city/state, different vehicle make/model. This is the reason it is important to get rate quotes from different insurance companies or from an online broker who represents different companies, such as NetQuote.

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