Before you Lease
Leasecure Corporation believes that honesty and integrity in
business is essential in order to earn the trust of new clients, and
retain the trust and loyalty of existing clients. The following
"leasing 101" information is a work-in-progress that is provided in
our various industry specific email newsletters, and provided in
whole on our website.
It our intent that all our clients fully understand the
fundamentals of commercial leasing and the potential damaging
tactics unethical leasing companies will try to get away with in
order to charge you more than necessary.
Naturally we hope that you will lease your next commercial
vehicle with us, but if you are considering another company, we want
to provide you with as much information as possible in order to get
the best and honest deal.
Before You Lease Another
Vehicle (Vol. 1)
Originally published in a DHL IC newsletter
Although this article was
originally written for independent contractors (ICs) such as FedEx
and DHL, the information is useful for anyone ready to lease a
commercial vehicle.
ICs Please Read The Following Announcement
Leasecure Corporation has
discovered that some ICs have become victims of a lease
facilitator "bait-and-switch", which has caused some ICs to
underbid their contracts with DHL.
What We Have Uncovered: ICs not working directly with
Leasecure Corporation are signing contracts with lease
facilitators without access to all the details concerning their
TRUE costs and ACTUAL
monthly payments. The danger is that ICs are led to
believe they are acquiring new vehicles at a lower monthly cost
per vehicle than from Leasecure Corporation, or another
reputable leasing company.
- Have you ordered new vehicles
without a line item detail breakdown of your costs?
- Have you bid on a contract
without knowing your ACTUAL vehicle payment(s)?
- Have you been told that "WE
don't charge a funding or administration fee" from a lease
facilitator?
- Have you been quoted a rate
that seems to be less than what you ended up paying?
- Have you never questioned what
exactly makes up the tax, title, and all other fees total?
If you answered "yes" to one or
more of the above, then you may have very well been victimized!
THE BAIT:
A typical "bait-and-switch" quote
may suggest an E250 published priced vehicle at $16,735, which
includes ARI's fee of $335. Monthly payments are calculated off
this price with a disclaimer that tax, title, and any other fees
are not included. The monthly payment is also calculated off the
best Tier-1 preferred credit rates as opposed to what rate or
tier an individual IC may be qualified for based on credit
history.
Our 12-years experience as a lease
facilitator, coupled with our five years Airborne and DHL
specific experience, tells us that 95% of ICs are approved at
Tier-2 credit rates, not Tier-1. Leasecure Corporation will
always quote an IC at the more appropriate Tier-2 rate, and if
approved at Tier-1, Leasecure will pass that on to the IC as a
lower monthly payment.
Finally, most financial
institutions charge an administration or funding fee, although
an IC may have been told the lease facilitator does not. The IC
still ends up paying that fee in his or her monthly payment as a
capitalized fee, intended to be transparent to the IC.
Leasecure Corporation
strongly advises against DHL vehicle leases that are 60
months in length and will never quote 60 months unless
specifically requested by the IC. Leasecure will always
quote a 48 month or less term. Again based on our
experience, we have evidence that vehicle maintenance costs
beyond 48 months will cost an IC more in operating expense
than the cost of a new vehicle.
We will, however, be more than
happy to provide you with a 60 month quote to compare
"apples to apples".
THE SWITCH:
The switch occurs after the IC is
committed to the contract when the lease facilitator orders the
vehicles on behalf of the IC. The IC has already bid the
contract and has been awarded the DHL contract based on
underestimated vehicle operating costs. At this point the IC
begins his or her contract losing money. Additionally the IC may
be renting vehicles.
The IC vehicle contract will
include sales tax, license fees, title fees, actual vehicle
payment based on non-Tier-1 rates, and does indeed include an
administration fee.
THE LEASECURE
ALL-INCLUSIVE QUOTE
Leasecure Corporation's
all-inclusive quote is valid for 30 days and includes:
-
Monthly payments quoted at a
more realistic Tier-2 credit rate.
-
Line item detail of every cost
that makes up a vehicle payment.
-
Tier-1 rates disclosed for
comparison should the IC be approved at this rate.
-
Taxes will always be calculated
and quoted on a worst-case scenario (state, county, and city
tax rate). We do this because every "garaged" location is
different. If the taxes are less, then IC vehicle payment is
less.
-
NO HIDDEN OR TRANSPARENT COSTS!
Before You Lease Another
Vehicle (Vol. 2)
Originally published in a DHL IC
newsletter
-
Read your contract/agreement in detail before
leasing and especially before you bid on a DHL contract.
-
Will you be required to pay any out-of-pocket
expenses?
-
Are all fees provided by line item detail?
-
Do you know your actual monthly lease
payment?
-
State Sales Tax - payment: the
choice is yours:
-
Most states have a sales tax
-
Some states require sales taxes to be paid up front,
such as Texas. In these states, the sales tax may be
capitalized or financed (not required).
-
Many states base the sales tax on the vehicle monthly
payment. In this case, the cap cost of your vehicle does
not include sales tax and interest is not applied
to the tax. Florida Example: A monthly before tax lease
payment of $406.87 would be subjected to a 7.5% Florida
state sales tax or $30.52 for a combined monthly payment
of $437.38.
-
NOTE: If a state required sales tax is
not included in your lease payment, then the entire tax
is due in cash at time of registration. For the average
new IC with a 15 vehicle fleet, this would require you
to pay out-of-pocket expenses for sales tax of $19,125.
OUCH!
-
Please fully understand your specific tax exposure and
all the options available to you before signing a
contract.
-
All states have license and title
fees. Fees should only be assessed based on
your garaging location.
-
Document Fees: Required by the majority of funders.
Before You Lease Another
Vehicle (Vol. 3)
What is The Correct Reserve/Residual For My Vehicle Lease?
TERMS:
Amortization - TRAC Lease: Vehicle cap cost monthly
payments are amortized to a goal of having the residual equal the
market value at sale.
Depreciation - Original vehicle cost less proceeds from
sale (cost - sale profit = depreciation)
Depreciation Reserve - TRAC Lease: Monthly payment =
(principle + depreciation reserve). The reserve is the anticipated
depreciation when sold.
Book
Value - TRAC Lease: "Portion of cap cost that remains after
amortization payments have been paid. (value against which the
resale proceeds are applied to determine the terminal rental payment
under a TRAC."
So what
does this mean to the IC? A TRAC lease vehicle market
value/reserve/residual is determined at the beginning of the lease
contract. The intent is to estimate the reserve to be equal to or as
close as possible to the market value when the vehicle is sold. If
the vehicle is sold for less than the reserve amount, then the IC
pays the lessor the difference. If the vehicle is sold for more than
the reserve, then the IC retains the difference. If the vehicle is
sold for the reserve amount, then no additional exchange of funds is
required.
Source: Fleet
Financials May/June. (2007) p. p. 16-19
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