Lots of people agree that car leasing is the more attractive option when you need to get a new car… but are they wrong?

There are certainly advantages to car leasing – but only if you don’t get sucked into a car dealer scam in the process… and the truth is: a lot of people get a crummy deal.

Leasing regulation does not require as much disclosure as buying a vehicle. This has opened the door for a lot of shady car dealers to work on your pocketbook and take you for all that you’ve got.

Take a good look at the common car leasing scams and make sure you protect yourself.

Ridiculously low interest rates:

Some dealers quote a lower interest rate than what you’ll actually be paying. They do this by either purposefully quoting the “money factor” as the interest rate or calculating the loan without amortizing some closing fees, like the security deposit, into the loan lease.

Take the money factor for example: this is typically expressed as a four decimal digit, something like 0.004. Some dealers quote this as a 4% interest rate when in fact you need to multiply it by 24 to get a rough idea of the interest rate on your loan.

In this example, the interest rate is a much higher at 9.6% than the “quoted” rate of 4%. Make sure you crunch the numbers and understand the formula they use to calculate their interest rate. Look out for any fees not factored into the calculation.

If you’re not satisfied, never enter into a lease agreement.

Terminate your lease early for a low penalty

This is a long standing car dealer scam when it comes to leasing. You ask your dealer how much you will pay if you want to terminate your lease and he tells you: “You can pay only a small early termination administrative fee of $250″…. he/she is misleading you.

What he is quoting is only the small administrative penalty of early termination. In fact, there is a much stiffer penalty called an early termination fee and this runs into thousands of dollars that comes on top of the other administrative early termination fee.

Do not confuse the early termination administrative penalty with the termination fee. Read the small print carefully and know just how much you will get charged should you terminate your lease before its scheduled end.

Pay for an extended warranty you don’t need

Here’s the scam: the dealer slips an extended-warranty into the deal, but it’s already part of your lease! So essentially you’re paying for two warranties, and I don’t have to tell you that that’s a rip off. Another angle is he might even try to sell you on a 36-month warranty when you’re only leasing the car for a 24-month term.

You warranty is already factored into the lease, so don’t get sold on extended warranties by a slick salesman.

This is one of the best car tips I can give you about car warranties: avoid extended warranties provided by the dealer… shop around and find the best price on your car warranty. You’d be surprised what you can find online.

“Zero dollar security deposit”

Any dealer who advertises a $0 security deposit is leaving out some of the details. A security deposit is always factored in the lease under the provision for disposition fees. I may sound like a broken record, but always ALWAYS read the fine print on any agreement that you sign.

So when it comes time to buy your next car, you’re going to look for the best deal possible… but looks sure can be deceiving.

A number of car dealers will run a scam that is based around taking advantage of people with low credit scores. We call this the “sorry but we thought you look like a sucker” scam.

Here’s how the scam works:

You’re at the dealer and you see the car that you want. It sparkles, it shines and you’re in love with it. And even more amazing, but the dealer says you can get that kick ass 0.1% APR financing rate on this beauty… that’s the best deal you’ve seen!

So you setup the paperwork, you SIGN the paperwork, you grab the keys and drive that brand new beast home with a huge grin on your face.

The first week or two go by, and you’re still loving your new ride. But the phone rings… it’s the dealer who sold you the car. He says that the financing fell through and that you need to come in for some more paperwork.

“What do you mean the financing fell through?!? You said it was a done deal… we even SIGNED the paperwork!”

“Sorry, but the deal was dependent on credit approval and you did not qualify.”

Usually, you’ll have to pay a further down payment and your finance rates will go up.

How does this scam work:

The car dealer can find out your FICO score pretty easily. In fact, nowadays your credit score can be brought up instantly… and the thing is, if it’s below a certain level, you’re never going to get approved for that amazing APR rate.

The dealer knew you wouldn’t get approved, but it’s much easier to get you in that car with the false hope that you will get the better rate, than to sell you on the same car that will cost you even more. Plus, after you’ve driven it for a week or two, you’re pretty much best friends with your new shiny wheels so you’re less likely to put up a stink.

The car dealers prey on people with low credit scores, so it’s always a good idea to go in prepared.

How to avoid this scam:

The first thing you can do is not get car financing from a dealer. You can get some pretty great deals either online, or from your credit union or bank.

Getting a pre-approval from your bank or credit union for a car loan before going to the dealer can save you a lot of grief, but knowing your credit score will also prepare you.

Sometimes, there are so many fees that it can be confusing to know which ones are really legit.

One such fee is the dealer prep fee.

The dealer prep fee is a scam… plain and simple. Here’s why:

The dealer prep fee is supposed to cover the dealer’s time for things like removing the cardboard carpet covers… the plastic on the windows… and taking the car for a test drive.

And even though the dealer will charge you something like 400-500 bucks for this service, it seems pretty expected that they would want you to pay for their service, right?

WRONG!

The thing is, most manufacturers already pay the dealer for this service by including this service in the price of the vehicle!

So where is that extra 500 bucks going? Straight to the pockets of the car dealer.

The manufacturer wants the vehicles to be delivered in the same way for each customer. That’s why they include this service in the price, so that they can get the dealers to follow their steps correctly.

Though the dealer prep fee isn’t necessarily common practice, it is out there… and you should know about it.

If you do run into a situation where a dealer wants to charge you the dealer prep fee, tell them to remove it from the invoice. If they refuse, then you can let them know that you’ll find another dealer that wants your money. After all, just think about how many other scams this dealer is trying to push on you if they are willing to try and pull the dealer prep fee off on you?

If you’ve had any experience with a dealer prep fee, let us know in the comments below.

While you’re at the dealer, don’t forget to try and get as many car insurance discounts as possible too. Check out a few of the most common discounts here.