The Purchase-Lease Switch Car Dealer Scam

The purchase-lease switch car dealer scam happen during payment negotiations.

The purchase-lease switch scam is when a dealer switches a buyer unknowingly from a retail purchase to a lease when purchasing a vehicle.

I’m not saying there’s anything wrong with leasing a car. I am saying leasing a vehicle is not for everyone, especially if you’re not aware you are about to sign for one.

Main Difference Between a Lease and Retail Purchase

The two most common ways to buy a new car at a dealership are a retail installment contract or a lease. Certain restrictions may apply to a lease that might not make it the right decision for some people.

After making all the payments on a retail installment contract, you will own the car free and clear.

When leasing a vehicle, you’re essentially just renting it for a certain period, generally between 12-60 months. You will not own the car at the end of the lease term.

After the initial lease, you’ll have a substantial residual balance you’re responsible for. You can either write a check to pay the car off, walk away, or trade it for another vehicle.

1) A Retail Installment Contract

You will enter into a retail installment contract with a lender when purchasing a car. You will be making payments to the lender for the total amount financed, plus interest, for a specific time. Usually, these contracts will be anywhere from 12 to 84 months or more.

There are no mileage restrictions or any other rules. Once the contract is satisfied, you will own the vehicle free and clear.

2) The Lease Installment Contract

Leasing a vehicle is based entirely on paying for the amount by which a vehicle’s value depreciates during the time you’re driving it, essentially renting it. Leasing agreements are typically 12 to 48 months but can also be up to 60 months.

Several restrictions may apply when leasing a vehicle. Mileage restrictions, insurance coverage, and failure to maintain your car during your lease can ultimately lead to higher costs.

Once the initial lease term is completed, you will not own the vehicle and will still have a remaining balance owed on the car.

How the Purchase-Lease Switch Scam Works

Unlike other finance process scams, the purchase-lease scam comes into play when you’re negotiating payments with a salesperson. A salesperson will lead you to believe you’re purchasing a vehicle when you’re presented with lease payments and terms.

You may think, “how could anyone not realize they’re talked into a lease?”  I promise you; that this happens every day in dealerships nationwide. Again, leasing is not bad if you understand the game’s rules.

A salesperson may also tell you that you’ll own the car at the end of the lease term. This is not entirely true because, at the end of an initial lease term, you’ll have a substantial residual still owed on the vehicle if you choose to keep it. What that means to you is more payments for a few more years.

Some salespeople may also tell you that you’re building equity in the vehicle while making the lease payments; this is also false. You don’t own the vehicle; the leasing company owns the car.

Example of How a Dealer May Talk You Into a Lease

A car salesperson may use the negotiating table to sway you away from a retail purchase, trapping you into an unwanted lease. Leasing is not the wrong way to pay for a car, but it’s not for everyone.

After presenting you with $500/mo payments, the car salesman will return to the sales manager and have them write a $350/mo lease payment for the same car. When presented with the lower payment and under the stress of buying a car, all you see is the more down payment and tend to forget about everything else. Keep in mind that leasing is not suitable for everybody.

After presenting you with much lower payments on the exact vehicle, the salesperson may not touch on the negatives of leasing a vehicle when given car loan payments at a dealership. You should always ask if you’re being offered “purchase payments” or “lease payments” before deciding.

How to Avoid the Purchase-Lease Scam

  • Always read everything before you sign it, especially the contract. A Motor Vehicle Lease Agreement will have the word lease printed. Some manufacturers have fancy names for lease programs like “Red Carpet Option.” Always ask if these types of programs are similar to a lease.
  • Online competition between dealers always gets you the best price.
  • Car dealers will also commit the lease-purchase scam in their advertising. When you see a super low payment for an advertised vehicle, look for the asterisk or symbol beside the price. Read the small print and see if it states the payment or price advertised is only available if you lease the vehicle.
  • Only finance with a car dealer as a last resort. Check current finance programs and apply with your bank or local credit union, or for the best interest rates, use online auto finance lenders to get free car loan quotes.
  • Don’t talk to several salespeople at the same time. Dealers may use this technique, overloading you with information, to confuse you into buying a car without making good car-buying decisions.
  • Do your homework first before contacting a car dealership. Decide on the vehicle you want to buy and figure a fair profit new car offer beforehand.
  • Don’t visit a car dealership alone. Take a close friend or family member with you. Fast-talking salespeople are very talented in manipulating you into buying something you don’t want or, worse yet, can’t afford.

About the author
Carlton Wolf is the author and founder of Auto Cheat Sheet.My name is Carlton Wolf, and I’ve been in the car business since 1994, both retail and wholesale. I created the Auto Cheat Sheet to better educate buyers about the deceptive sales practices used by many dealerships throughout the country. Please understand that not all car dealers are dishonest. However, you never know who you’ll be dealing with, though. I’m willing to share my knowledge and experience with anyone who listens. Keep in mind that I’m a car guy, not a writer.

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