This is the second of nine articles in our Blog Series Is Leasing Really Fleecing? In our previous article on How Leases Work, we stated that "interest" was one of the factors in determining the amount of the monthly lease payment. The time value of money is a significant factor in the pricing of leases. But, interest does not work the same way in leases that it does in car loans.
This is the first of nine articles in our Blog Series Is Leasing Really Fleecing?
In the typical Yo-Yo Scam, a car dealership tells the consumer that she is "all set" and that her credit application has been approved. She drives home in her new (or pre-owned) car and shows it off her to her friends, family, and co-workers. About a week later, the car dealer calls and says "There is a problem with the bank. Your application was not approved."
All too often, consumers come home from a dealership and realize that they cannot make their new car payments. They often wonder how they could possibly have been approved for a loan that they could not afford. Most often, they are victims of credit application fraud.
Most consumers trade-in their old vehicle when buying a new car. These deals can be complicated if there is still money owed on the trade-in, and a consumer can have real problems when the dealership does not pay off the trade-in.
Car dealers like to brag about their relationships with multiple banks and finance companies, and they often imply that these connections help consumers get low interest rates. But, many consumers would be surprised to learn that car dealers frequently mark-up the interest rates. In many deals, the dealership makes more money by marking up the interest rate than they profit from the sale itself.