Leasing is a better financial and tax deal for many people.  However, it's also more complex because there are more variables.  Is it more important to you to have the lowest possible monthly payment, or to have a lower buyout at the end of the lease?  Do you want to drive the vehicle for two, three or four years?  How many miles do you anticipate driving in a year's time?  You need to know the answer to these and a few other questions before you are prepared to negotiate.

My needs are important to Alpha Leasing and they work hard to tailor leases to fit my personal situation.  Their willingness to satisfy was evident when they worked to sell my existing cars for me.

         --- Fred Huecker, K&I Lumber

But once you've learned the answers to these questions, negotiating a good lease deal is very similar to negotiating for a purchase.

There are four basic variables in a lease:

• Capitalization Cost (price of the vehicle)
• Residual Value (what it is estimated to be worth at the end of the lease)
• The Money Rate Factor (the interest rate)
• Length of Lease (how long your lease will last)

These four variables are going to be used in a similar way by all leasing companies to figure your monthly payment, and one of them (length of lease) is almost completely up to you.  So that leaves three main negotiating points that are very similar to those in a purchase negotiation, and a few smaller ones.  Under normal leasing scenarios, here are your most important objectives:

1. Achieve the lowest possible Capitalization Cost - Even though you are leasing the vehicle, not purchasing it, you want to negotiate the lowest possible price.  Beware of any dealer that tells you vehicle price doesn't matter for a lease.  Make sure that you do your homework before you sign any deal.  If you know which vehicles you are interested in, do your research before you visit the dealer.  With all of the information available today on the internet it is fairly easy to find out MSRP, invoice, average markup, and available rebates on any new vehicle.  If you are looking at a used vehicle, you can easily find wholesale, trade-in and retail values of vehicles at Kelley Blue book (www.kbb.com).  If you want, our professionals would be glad to do this research for you.
    
2. Negotiate the lowest possible Money Factor - The Money Factor is a complicate formula lessors have for computing the interest rate on a lease.  See our detailed explanation of the money factor.  Your goal is to get the lowest interest rate, or money factor possible, which will lower your monthly payments.   Since the money factor is usually a fraction, like .00075 or .0015, pay careful attention to where the decimal point is and how many zeros there are.  You can convert the money factor to an interest rate by multiplying it by 2400.  Remember that .00075 (equivalent to 1.8% interest) is lower than .0015 (equivalent to 3.6%), and therefore a better number for you.
    
3. Obtain the highest possible Residual Value - In most leasing scenarios, the higher the residual value, the better off you will be.  If you are comparing "apples to apples," in other words, you're looking at the same capitalization cost, money factor, and lease length, then the higher the residual value, the lower the monthly payments will be.  Assuming you won't want to buy the vehicle at the end of the lease, that's good.  A luxury vehicle will often lease for the same amount per month as a cheaper vehicle, because it holds its value better.  The lessor is willing to lease it to you for less because they can sell the vehicle for more money at the end of the lease than the one that depreciates more quickly.
    
4. Structure a Length of Lease that meets your needs - Most leases are between two and five years.  Generally, the longer the lease, the lower your payments will be, but the longer you will be obligated to stay with the vehicle and its payments.  Since new vehicles generally have a factory warranty of about 60,000 miles, most people like to lease the vehicle for the length of the factory warranty.  If you average 15,000 miles a year, then that's a four-year lease.  If you put 12,000 miles per year, that's a five-year lease, and if you drive more than 15,000 per year, you should consider a three-year lease.

Many car dealers offer more than one lease program, and rarely will any program offer the best numbers on all 4 options.  In this case, you will have to decide which are your most important objectives.  Here are just a few examples of what we are talking about:

1. Manufacturers often subsidize a lease by offering artificially high residuals, but want to place the cap cost closer to retail than other lessors.  For example, the cap cost may be $2,000 higher than what you could get it for elsewhere, but the residual is $4,000 higher.  The manufacturer's monthly lease payment on a four- year lease will be approximately $50 less than the other lessor, but the buyout will be $4,000 higher.  If you don't buy the vehicle at the end of the lease, this is a great deal, but if you are planning on buying the vehicle this is a bad trade-off ($2,4000 savings on payments in exchange for a $4,000 increase in the buyout).
    
2. Different lessors often have different mileage penalties.  Lets say that Lessor A charges 24 cents per mile for extra miles, and has a lease payment that is $10 less per month than lessor B who charges 14 cents per mile for extra miles, and you are looking at a 4-year lease.  At first blush, you would pick the lower payment every time.  But what happens if you end up driving 18,000 miles per year.  At the end of four years you will have 12,000 extra miles (3,000 per year for 4 years).  Lessor A will charge you $2,880 in extra mileage charges while Lessor B will charge you $1,680 in extra mileage charges.  You end up saving $480 over the life of the lease ($10  times 48 months), but pay an extra $1,200 at the end of the lease.  This is not a good trade-off.

Our lease professional will be glad to go over each of our lease programs in detail, and help determine the best program for you.

Part 10: What Happens at the End