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THE HOYOS FILE: An ‘untidy situation’ in vehicle financing

Patrick Hoyos

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I don’t like writing consumer-type columns because, for one, they take all  the fun out of shopping, and for another, they end up with me having to do math, which is not recommended.
However, I might make an exception today and delve into the murky world of financing a vehicle.
In olden times, when it came to getting some “wheels” – as a now ageing generation used to say in their teens – you either paid cash in full, or you paid some as a “downpayment” and got your friendly banker to pay the rest.
Then you paid him back with interest over time. You got the title under a bill of sale, he got a mortgage over the vehicle until you paid him off.
These days, there are two other options in the mix, the second of the two blurring the lines a bit and leaving ye olde consumer in a sort of no man’s land.
First, along came leasing: don’t even want to put down a dollar on your vehicle? No problem, we will rent you one. Or you can put down a small amount, say, five or ten per cent of the cash cost. The remainder you pay with lots of interest over several years and then comes the final option: make a “balloon” payment and keep the vehicle, or turn it in and maybe get a new one under a new lease.
This seems to have been introduced in response to the needs of the ex-pat community as it grew with the expansion of the offshore sector, but it is now used by many locals, especially professionals.
They want to look good in a nice car but don’t see the need to actually buy one. All of the VAT they pay on each monthly installment is claimable, compared to just two-thirds if you actually go into a bill of sale agreement.
The waters, however, start to get muddy if you think you are getting a bill of sale deal and wind up signing a lease, like I did the other day.
I should really read the fine print of what I am signing.
When I complained about being called “the lessee” 500 times in a three-page document, wherein it was pointed out that I have absolutely no title to the vehicle until the very last payment is made and after paying another token $100 (which I would not be actually asked to do, they said), I was further told that there was no need to worry, because what I really have is a “finance lease” (or something like that) which means the accountant can act as if we have full title, booking the amount paid up front in the assets column and deducting the VAT (two-thirds, as said before) and claiming the monthly interest paid under expenses.
But we still have no title legally.
Seeing my plight, another finance company, which tends to take a more global view of things, kindly said it would refinance my purchase, giving me a bill of sale and taking a mortgage for the amount owed. The legal and administrative costs would total about $600.
So in an effort to understand all this legal fancy-dancing, I asked a learned friend, who also leases a vehicle but admitted that a bill of sale gives the consumer more protection from a court in the event of a repo situation.
The vehicle could not be spirited away in the middle of night, but of course this would never happen under a lease either (I’m told).
“It’s a bit of an untidy situation,” my friend said, adding, “a bill of sale is a lot cleaner, but this is the lending agencies trying to find the easiest way to cover themselves.”
Also, under a lease, if the vehicle starts to give you trouble you could technically ask for it to be replaced with a new one, but I understand that situation can also be a murky one.
If you lease a lemon, can’t you just give it back? Maybe, or maybe not, I’m told.
Suddenly if all this stuff about your not owning the vehicle, which suits the lender to a T should you not pay on time, gets turned on its head if the vehicle sucks and you say okay, owner, take this lemon and shove it! Can you do it? I hear it can be “untidy”.
By the way, and here is where you should check the math, if you make only a small down payment and lease for five years, and then opt to buy the vehicle by paying off the balloon, you will have spent much more in interest than if you paid a sizeable deposit up front.
So take your pick. As for me, I am trying to get out of this lease as fast as I can.
So, with apologies for sounding like the Grinch trying to steal Christmas, may I wish you all a happy holiday season and wonderful new year.