The Insider's Guide to Car Buying ☰ 

Purchase-Lease Switch Dealer Scam

How to recognize and avoid the purchase-lease switch car dealer scam |

This purchase-lease scam is committed when a car dealer switches a car buyer unknowingly from a retail purchase to a lease when attempting to buy a new car.

When you outright purchase a vehicle, after making all the payments, you will own the car free-and-clear. When leasing a vehicle you're essentially just renting it for a certain period of time, normally 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 in for another vehicle. This can be a big surprise if you're not expecting it.

Anytime during the lease period you decide to pay-off the lease, trade, or return the car early. You will be subject to an early-termination fee and possibly additional fees on top of your current balance.

Difference Between a Retail Purchase and a Lease

The two most common ways to buy a new car at a dealership is a straight retail purchase or a lease. I'm not saying there's anything wrong with leasing a car. What I am saying is leasing a vehicle is not for everyone. There are certain restrictions that may apply to a lease that might not make it the right decision for some people.

Straight retail purchase - When purchasing a car, you will enter into a retail installment contract with a lender. You will be making payments to the lender for the total amount financed, plus interest, for a certain amount of time. Normally this length of these contracts will be anywhere from 12 to 72 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.

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

There are several restrictions that may apply when leasing a vehicle. Mileage restrictions, insurance coverage and failure to maintain your vehicle during your lease can lead to higher costs at the end.

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

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 that you're purchasing a vehicle when you're actually being presented with lease payments.

A salesman may also tell you that you'll own the car at the end of the lease term. This is not quite true because at the end of an initial lease term you'll have a huge residual still owed on the vehicle if you choose to keep it.

Use this handy Car Payment Estimator to estimate the payment on any vehicle.

Some salespeople may also tell you that you're building equity in the vehicle as you're making the lease payments, this is also a false statement. You don't own the vehicle, the leasing company owns the car.

How Dealers Talk You Into a Lease

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

After presenting you with $500/mo payments, the car salesman will go back 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 lower payment and tend to forget about everything else. Keep in mind, leasing is not right for everybody.

After presenting you with such lower payments on the same vehicle. The salesperson may or may not touch on the negatives of leasing a vehicle. When you're presented with car loan payments at a dealership. You should always ask if your being offered, "purchase payments" or "lease payments" before making a decision.

How to Avoid the Purchase-Lease Switch Scam

  • Always read everything before you sign it, especially the contract. A Motor Vehicle Lease Agreement will have the word lease printed all over it. Some manufacturers have fancy names for leases like "Red Carpet Option." Always ask if these types of programs are similar to a lease.
  • Competition between dealers always gets you the best price. Read my article on how to get car dealers to compete online for your business.
  • 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, 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 a 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.

Now that you know how to recognize and avoid the "Purchase-Lease Switch Scam," familiarize yourself with other common car dealer scams.

This is good stuff, Please Share It!

Get a free new car price quote from Car Clearance Deals
Did You Know?

Contrary to popular belief, factory invoice price is not a dealer's true new car cost.

Other factors such as customer rebates, incentives and dealer holdback will all affect what a dealer really owns a vehicle for.

What's Your Trade Worth?
See how much your trade in is worth

As the old saying goes, "knowledge is power." This certainly applies to knowing how much your vehicle is worth to a dealer.

Find your vehicle's trade-in value here.

See your cars value
How to Get the Best Price

Have local car dealers compete for your business. Start an online bidding war between dealers from the comfort of your computer.

Get local dealers to compete for your business by requesting free, no-obligation price quotes from the following online companies.

Best Car Pricing
Car Clearance Deals

Competition between dealers is the best way to ensure you get the best price. You win when dealers compete!