If you don't read the fine print, the auto deal won't be your type
By Lucy Lazarony • Bankrate.com

Ever wonder what all that fast talk is at the end of a radio ad for a new car? Or the big block of text that flashes at the end of a TV ad for a spiffy SUV? Or that teeny-tiny print at the bottom of a leasing ad in a local newspaper?

It's nothing less than the information you need to cut through an ad's hype and calculate the true cost of a deal.

How important is this stuff? Let's put it this way: In September 1999, the Federal Trade Commission fined Mazda $4.05 million, the largest civil penalty ever from the FTC's Bureau of Consumer Protection, for messing around with the fine print in its TV lease ads.

The Mazda ads flashed the information concerning security deposits and the total amount due at lease-signing in too-small print, for too short of a time, amid distracting sounds and images, says Sally Forman Pitofsky, a senior attorney at the FTC. She called the ads "deceptive."

"Consumers may have been misled as to what was actually due at lease-signing," Pitofsky says.

Mazda also agreed to pay $1.2 million to settle similar allegations made by 24 states.

What the fine print contains
The rules differ in their details for auto leases and loans, but the underlying idea is the same -- if a dealer brags about one part of a financing deal, the other parts have to be revealed, too.

 

Using the fine print to your advantage

Whether you're leasing or buying, you can use the fine print to your advantage. Here's how:

Take the ad with you to the dealership. "That way the dealer can't forget part of it or change part of it," says Jeanne M. Hogarth, consumer policies analyst for the Federal Reserve Board.

Study advertised rebates and discount financing deals carefully. Get out a magnifying glass and you'll probably find the words "with approved credit" or "on approved credit." Some ads simply list "WAC" or "OAC."

Make sure the dealer follows through with the advertised deal. The most-favorable parts sometimes disappear during negotiations, Hogarth says. "You don't get quite as good a deal as you thought you were getting and the dealer gets an extra $750 in his pocket."

Shop around for financing. Before heading over to the dealership, compare offers from banks, credit unions and finance companies. Be prepared to give the dealer a rate that he needs to beat if he wants your business. "Once you find a car you want, shop around for financing with the same vigor that you shopped around for the car," consumer advocate and car expert Jack Gillis says.

Have a good look around the dealer's lot. "There may be some very good deals on the lot that aren't advertised," Hogarth says. "Always ask about other options and other deals.

For auto lease offers: Federal regulations require that if it says any or no payment is required at lease-signing or states the amount of any payment, including monthly payments, then the ad must also disclose:

• That the advertised transaction is a lease
• The total amount due at lease signing
• The number, amounts, and due dates or payment periods of scheduled payments
• Whether a security deposit is required.

For auto loan offers: Federal regulations require that if an ad states the amount of the down payment, amount of any payment, number of payments or payment period, or the amount of any finance charge, then it must also disclose:

• The amount or percentage of the down payment
• Terms of payment
• The annual percentage rate

The idea behind the rules is that if an ad hypes one aspect of a financing deal, such as a $199 monthly payment, then it must also list the other financing costs.

"This is all the information that is usually given at the end when you hear that fast blurb along with other things a manufacturer or dealer can put in," Pitofsky says.

There are some regulations on how tiny the print can be, she adds: "All that information must be clear and conspicuous -- that means readable and understandable. A consumer needs to read and understand this important information so they can comparison shop, so they can compare different lease offers or leasing vs. financing options and decide for themselves what's the best option."

With lease ads, for example, the monthly payment can stand out from the rest in big type, but any other payments due at lease signing have to be given equal prominence in the ad. This rule was added in 1998 to end abuses in which lease ads blared "no down payment" -- while the fine print listed a lot of other payments due at signing.

Leases more complex
Some consumer advocates feel auto ad disclosures don't go far enough, especially ads for leases, which consumers don't understand as well.

"Leases are complicated and difficult to understand. There's no way you're going to see all those elements in a commercial ad," says Robert Ellis, director of operations for LeaseWise, which is part of the Center for the Study of Services, a nonprofit consumer research group in Washington, D.C.

When analyzing a lease, the three key factors that you need to know are the capitalized cost, residual value and the money factor. This worksheet from Bankrate.com will help you crunch the numbers.

In a lease, a person pays the difference between what a car is worth today and what it is expected to be worth at the lease's end, plus a monthly fee to the finance company.

In leasing language, today's value is called the "capitalized cost." Tomorrow's value is called the "residual value." The lower the capitalized cost and the higher the residual value, the better the deal is for the consumer. The monthly fee is calculated through the "money factor," which is similar to the interest rate paid on a conventional loan but expressed as a difficult-to-understand fraction.

To convert a money factor to a recognizable interest rate, multiply it by 24. For example, a money factor of .00345 would be equivalent to roughly 8.3 percent interest. The money factor determines how much you pay the finance company each month for the privilege of driving that car.

Missing money factor
While you may be able to decipher a lease's capitalized cost and residual value from an ad, you're not likely to learn the money factor. Consumer experts say two out of three just doesn't cut it.

"If any of those are missing, they can make up the money on the other side," Ellis says.

Without all three, you could be paying through the nose for what you think is a good deal.

"Chances are you could, and you wouldn't know about it," Ellis says.

Experts say consumers should understand the fine print -- and use the details as starting points during negotiations. Everything from the yearly driving allowance to the price of additional options can be haggled over.

"It's important that you know all the things you can negotiate and that stuff is in the fine print," says Jack Gillis, author of The Car Book series of consumer-oriented car-buying guides. "It's vital to review the fine print."

-- Updated: July 9, 2001