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
- 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:
- 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
- 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.
- 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
- 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
- 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).
- 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.
What Happens at the End