Car Lease Tips (The Ultimate List)
When leasing a car it is important to obtain as much information as possible. We decided to save you time and compiled the ultimate list of car leasing tips we could find on the Web.
Car Model Tips
Choose the model you want – research mileage, make, model and color
Decide exactly what vehicle you want, including color, interior, options, etc., beforehand. Find the vehicle you like, identifying its model year, the make and model, and the trim level. Learn everything about its sticker price and obtain invoice pricing through a site such as Consumer Reports. Make sure the dealer has one in stock or can get one before discussing any numbers.
Make a list of car types in your price range.
You can reduce non-lease costs by including models with favorable gas mileage, high dependability, top safety features and low insurance premiums (ask your auto insurance agent for a list of vehicles that fit the bill).
Cost Related Tips
Get all the numbers up front
Make the dealer give you all the numbers up front, not just the monthly payment, but everything on the contract you will eventually sign. Once you’ve got the deal that makes the most sense, ask the dealer for a complete breakdown of the selling price, the residual value and the money factor. To be sure the car’s sale price is the same or less than what other shoppers in your area are paying, compare it to Edmunds’ average price paid via https://www.edmunds.com/car-leasing/quick-guide-to-leasing-a-new-car.html
Check out the total cost over the full term
Calculate the total cost over the life of the lease, and include the down payment. A lease with a higher down payment and low monthly payments may be a better deal for you.
Know the capitalized cost
The capitalized Cost is simply the selling price of the vehicle. Now, wait a minute! It’s not That simple! Almost, but not quite!
You’ve got your Gross Capitalized Cost which is the selling price of the vehicle (Which you negotiated just like you were buying…OK?!), plus all other pertinent fees like the Acquisition Fee if any, dealer title fees, payoff on your trade, Extended Warranty, Credit Life Insurance, Accident and Health Insurance, Gap Insurance and any other fees that might come into play.
Then there is the Adjusted Capitalized Cost which is the Gross Capitalized Cost minus any reductions such as net trade-in allowance, cash down, rebates, taxes, license fees and registration fees.
Make sure your trade-in is deducted from the leased car’s capitalized cost
If applicable, make sure your trade-in is deducted from the leased car’s capitalized cost.
Credit Score Related Tips
Check your credit report
In order to lease a car, your credit rating must be as good or better than it needs to be if you were getting a bank loan. If you’re not sure how your credit looks, or if you just want to make sure their is no incorrect information in your credit record go here to get a copy of your Credit Report & Credit Score.
Car Deals Tips
Research leasing deals
If a dealership offers a lease that is at or below the offers made by the carmaker or the Edmunds.com $199 Lease Deals of the Month, you’re in pretty good shape. If you want to shave off every nickel from your lease payment, you’ll have to shop for your deal, just as you would if you were buying a car.
Compare lease deals
When you return home from the dealer, calculate the lease deals on offer and figure out how much you can afford to pay monthly. At a minimum shop from 5 dealers on the lease offer. Tell them about other dealer’s offer to get better price. Remember to negotiate on the MSRP or sticker value. Ask for invoice price (which is the cost of the car to the dealer) and negotiate from there. Once the car price is negotiated, then you can calculate the monthly payments.
Fees When Leasing a Car
This fee is charged by the leasing company to cover the expense of cleaning up and selling the car after you return it at the end of the lease. Most charge between $300 and $400. You normally won’t be able to avoid this charge unless you buy the car at the end of the lease or, in some cases, lease or purchase another car of the same brand.
Know early exit fee
The remaining payments on your lease penalty will be the most costly if it requires actually making you pay all of the remaining payments. For example, if the lease term is 36 months, and you decide that you want out after 21 months, you will be required to pay the remaining 15 months if you terminate now. If the monthly payment is $300, you will have to come up with $4,500 ($300 x 15 months) in order to get out.
Some car leases do not specifically require making the remaining payments, but instead impose some sort of penalty. That penalty could be listed as a flat amount, or it can be expressed as a number of monthly payments.
Early termination fees can also be based on a sliding scale. It may call for making three extra payments if you terminate the lease during the first 12 months, two payments if you terminate within the second 12 months, and one payment if you terminate within the third 12-month time period. The possible combinations can vary widely. Read more here.
Know the Fees You Might Have to Pay
Shoppers looking to improve their lease contracts might also have success if they ask for some fees to be reduced or removed from lease contracts. All contracts have acquisition and disposition fees that can’t be negotiated out, but the security deposit can be waived. Furthermore, fee amounts are different from one lease company to the next. In recent years, fees have crept up from $300 to more than $650. (according to https://www.linkedin.com/pulse/top-15-car-leasing-tips-mahesh-varavooru)
Note any end-of-lease procedures and fees
Note any end-of-lease procedures and fees (such as returning the car with nearly new tires). Make sure the policies and fees are clear and fair.
Termination Penalty Fee
There’s also something called a termination fee that’s usually charged if you decide to end your lease early. Find out how much it is and exactly how it works.
What drive-off fees do I have to pay?
Drive-off fees are a combination of fees and a down payment. The effect of a bigger down payment is lower monthly payments, of course. Ideally, though, you want to pay as little as possible up front, and never more than $2,000 down. The more you pay up front, the more you have to lose if you total the car shortly after you begin the lease.
Financing Related Tips
Get Your Own Financing
Visit your local bank and get pre-approved for a car loan. This one step cannot only save you a lot of time at dealership, but it will also save you money most of the time. By getting a loan at your bank, you can negotiate your interest rate more effectively; thus, lowering your overall payment.
Insurance Related Tips
Buy Guaranteed Auto Protection (GAP) insurance
Unless it’s included with the lease, buy Guaranteed Auto Protection (GAP) insurance to protect yourself in case the vehicle is stolen or totaled in an accident.
Tips On Leasing Quotes
Get Quotes Ahead of Time
Try contacting a dealership’s internet sales department to get a quote before you visit the lot.
It’s pretty hard to let a salesperson lowball you when you already have a quote in hand from their dealership.
Be Aware of Your Mileage Limits
12,000 miles a year on car lease that’s the industry standard. If your lease includes only 10,000 miles, then the lease isn’t quite as good a deal. First of all, if you exceed 10,000 miles a year (or 30,000 miles for three years), the dealer charges you from 15-20 cents per mile. So, if you don’t ask how many miles are included, you could be in for a nasty surprise at the end of the lease. Also, quite simply, the lease has less value because you can’t drive the car as far as with a normal lease.
Buy extra miles, if needed, up front
For some drivers, the prospect of going over their mileage limitation is a very real one. Mileage fees can be anywhere from 10–40 cents per mile for each mile over your limit. That amount can add up. Consider buying your overage miles in advance, perhaps negotiating a lower rate up front.
Negotiating The Lease
Look at how much the dealer is charging over the invoice price.
Even though the total price is changing, the relationship to the invoice price reveals the best deal. For example, one car might be selling for $23,000, but its invoice price is $22,000, so it’s selling for $1,000 over invoice. The other car, selling for $24,000, has an invoice price of $23,500, meaning that it is selling for $500 over invoice.
If they don’t appear willing to negotiate some of the costs with you, be prepared to get up and walk out – you’ll almost never make it to the door without the salesperson becoming at least somewhat more amenable.
Negotiate a Car Lease Like a Purchase
Don’t tell the dealer that you’re leasing, but negotiate as if you’re looking for the best deal. To get the best deal, negotiate the cap cost first, as though you intend to purchase the car outright. Don’t even mention leasing until you and the dealer agree on a price. Once that’s settled, then you can bring up financing options (which include leasing).
Negotiate based on car price (not monthly payments first)
Negotiate the final price of the vehicle up from the rock-bottom cost to the dealership. You can find out what new cars cost a dealer for $14 per vehicle at Consumer Reports. Your monthly payments will be based on the price you and the salesperson settle on. That price will fall somewhere between the dealer’s wholesale price and the manufacturer’s suggested retail price. Never ever pay the sticker price of the car! If you cannot negotiate, use services like ours to negotiate the price for you!
Negotiate down the lease money factor
This is the lease equivalent of the annual percentage rate (APR) in a car-purchase loan. As with an APR, the lower the money factor, the better. Unlike an APR, it’s unlikely that the dealership will offer you a lower money factor than you got with your credit union or bank. Money factors are very small numbers, such as .00125 or .00074.
Tips On Payments
Once you lease a car, you are pretty much locked in, but not entirely! One of the ways you can get out of it is by refinancing it into a conventional loan. This can be tricky, so take care!
Keep monthly payments as low as possible
To keep your monthly payments as low as possible, look for cars that don’t depreciate faster than average. Consumer Reports’ owner-cost Ratings are included in the model pages with detailed information on depreciation and other factors.
Tips Related to Residual Value
Check the residual value of the vehicle
The Residual Value represents the estimated value of the car you’re leasing at the end of the lease term. These values are published monthly in the form of a percentage or a dollar amount, most commonly in the American Lease Guide (ALG). The higher the Residual Value the lower your payments! Some vehicles hold their value better than others, so when you’re choosing a vehicle check this out carefully.
Know residual value
Know the residual value of your car and at the end of the lease term you may discover its worth far more or less than its agreed upon value.
A high residual value is a good thing. The residual value is how much the car will be worth at the end of the lease. This figure is an estimate, set by the leasing company and expressed as a percentage (for example, 55 percent of the original value) or a price (the car will be worth $20,000 three years later). The higher the residual value, the lower the monthly payments.
Taxes Related Tips
Watch state taxes
Taxes will differ by state, but some states charge sales tax based on the full purchase price of the car.
Warranty Related Tips
Avoid leases that extend beyond the car’s factory warranty
Avoid any lease that outlasts the new car warranty — you want the manufacturer to assume major repair costs during the lease term.
Choose extended warranty
Most new car warranties are for 36 month or 36,000 miles whichever comes first. It makes little sense to lease a car beyond the factory warranty period. Yes, you can buy an extended warranty, but do you really want to make that kind of an investment in a vehicle you have to give back? The only time you should consider an Extended Warranty on a leased car is if you are planning to buy out the car lease, or if you are planning to buy the vehicle at the end of the lease term.
Other Tips Related to Leasing a Car
Ask your salesperson to deliver the car to you
Ask your salesperson to deliver the car to you rather than picking it up at the dealership. In this way, you avoid waiting around the dealership and getting upsells in the finance and insurance office. Dealerships would rather not deliver cars, but if you make your acceptance of the lease deal conditional on the delivery of the car, it might persuade them to make an exception.
Always come prepared knowing the dealer invoice price for the vehicle you want
Arm yourself with the tools you need to understand leasing before you hit the dealerships. On this page, we’ll teach you key car-leasing terms and their definitions so that you can make an informed decision about your lease.
Ask about safety
During your test drive, ask the salesperson whether the vehicle comes with anti-lock brake systems (ABS), electronic stability control (ESC) and head-protecting side air bags. All are valuable safety features.
Ask what happens if the car is involved in an accident
Ask what happens if the car is involved in an accident.
Be Ready to Walk Out
If you seem to be getting nowhere with a salesperson, don’t be afraid to simply leave.
One of two things will happen: The salesperson will panic and stop you halfway out the door to try sweetening the pot, or he’ll let you leave — in which case you can go find a dealership that is willing to work with you.
Bring a Friend
Even if you feel fairly confident in your negotiating skills, it always helps to have someone along to keep you on track. Whether it’s a friend, family member or a co-worker who’s good at looking intimidating, bring someone who can point out the pitfalls of a potential deal, remind you of your original budget goals and prevent you from falling for any sweet-talk trickery.
Check breaking lease penalties
According to DMV.org, penalties for terminating a car lease early include requiring you to pay some or all of the following:
- Remaining payments on your lease
- An early termination fee
- Costs related to preparing the vehicle for sale
- Storage and/or transportation of the vehicle
- Taxes associated with leasing, if any
- Negative equity between your lease amount and the current value of your car
Read more here.
Check Dealership Inventory
If your ideal car is in stock (read: sitting on the lot taking up valuable space), you’ve got an immediate upper hand in negotiating a car lease.
If a salesperson has to get a car for you from another location, they can play the “I’m doing you a favor by going out of my way” card.
But if you’re offering to take a car off their hands, you can play the “I’m doing you a favor by helping you move this off your lot” card.
Check leasing specials
When a car isn’t selling quickly enough, the manufacturer might advertise special leasing offers to move the metal. These widely advertised deals provide a low monthly payment by tweaking the leasing formula in one of a number of ways, such as offering a low interest rate. To see if it really is a good deal, make sure it doesn’t allow less than 12,000 miles or require a high down payment — or, in lease-speak: “drive-off fees.”
Check sales tax
When you are quoted a car lease payment make sure the payment includes sales tax. On a lease, you are taxed on each payment, and dealers are notorious for quoting payments without tax.
Check the Date
Chances are, there’s one key bit of information you’ve likely been overlooking as you browse cars at the dealership, and it could give you extra leverage: the manufacture date.
We all look at a car’s window sticker, which tells us things like price and miles per gallon, but don’t forget to the check out the manufacturer’s sticker (usually found on a vehicle’s driver’s side door). On the upper left-hand corner of the sticker, you’ll see a date and month, which tells you when the car rolled off the production line.
The further in the past that date is, the longer the car has been sitting on the lot — and the more the dealer has had to pay carrying costs on it. Meaning: They’re ready to get rid of this car.
Choose cars that hold their value
When you lease a vehicle you are paying for its depreciation, plus interest, tax and some fees. So if you choose a car that holds its value, or depreciates less, your lease payment will be lower.
In lease-speak, a car with good resale value has a strong “residual value.” This means the residual — the amount that’s left — is still high when your lease term is over. Many car websites and magazines publish annual lists of good lease cars. Search for “best residual values.” Some cars have a three-year residual value of only 45%, while Kelley Blue Book’s Best Resale Value award went to the 2016 Toyota Tacoma with a residual value of 72.9%.
Compare lease offers from multiple dealers
Compare lease offers from multiple dealers.
Compare leasing versus owning
Compare leasing versus owning. The Consumer Leasing Act requires leasing companies to give you information so that you can compare monthly payments and other charges.
Check and Compare Dealership Websites
Dealership websites are also a good place to check for lease specials. Many dealerships showcase lease specials that have been tailored to fit the local market, and the terms are often lower than those being offered by the carmaker.
Buying after the lease ends
If you’re considering buying after the lease ends, first make sure the vehicle is worth at least the purchase price. That often won’t be the case if you had entered into a subvented lease, for which the automaker artificially raised the residual value. If the vehicle is worth less than the buyout price, try bargaining down the price. If you can’t, walk away.
Considering alternatives to early lease terminations
Early termination requires you to pay off the full balance of the lease, in addition to paying hefty penalties to the car dealer or leasing company. A broken lease can also leave a bruise on your credit report. However, there’s another way to get out of a car lease that’s affordable and doesn’t affect your credit score. It’s called lease trading. Two companies that you could use are leasetrader.com and swapalease.com because they match up people who want to get out of their lease with people who want a lease.
Don’t load your cars with all the options available
Don’t load your cars with all the options available, prioritize and think about the fact that you will give back the car in 2-3 years (well, most of us will)
Get everything in writing
Get a copy of that agreement if you can; get everything in writing. Everything included with the car should be listed on the lease to avoid being charged for “missing” equipment later.
Go on a Good Day
If you visit a dealership when you’re feeling off your game (hungry, sick, tired, etc.), you’ll be less clear-headed and easier to push into a bad deal because you’ll want to just get things over with.
Go when you’re feeling rested and ready to handle the stress of negotiations.
Test Drive the Dealership and the Salesperson
Check out online reviews of the dealership and test-drive your salesperson.
When at home, plan which dealership you want to visit. You’ll likely want to go to the one that has your car in stock.
Once you’ve located a dealership, call and ask for the Internet sales manager. Tell him (or her) which vehicle you are interested in test driving and ask whether it’s still in stock. Let the Internet manager know you are still early in the shopping process and are still researching other vehicles. The Internet manager will likely have follow-up questions for you. While you are talking, pay attention to how your personalities mesh. Is he or she giving you short answers? Is the salesperson going the extra mile to meet your needs? You can find more information about this method here.
Key advantages when leasing a car
The three key advantages you have and should use in any car lease negotiation are:
- Your time to prepare and educate yourself about the car, prices, and leasing
- Your ability to shop around and find the best deal
- Your ability to walk away if you don’t like a deal that’s offered to you
Keep Your Phone Out
Plenty of apps can give you real-time assistance with how to negotiate a car lease — even during the conversation.
TrueCar shows you what other customers have paid for similar cars at a dealership.
The Cars.com app (found in the iPhone App Store and on Google Play) lets you compare in-stock vehicles at several local dealerships side by side and also helps you calculate loan terms based on current negotiations or your budget.
Not only do these apps help you be armed and ready, but they send a clear signal to the salesperson that you’re not someone they can take for a ride.
Know Your Numbers
A lease has more components than just the price of the car, so make sure you sit down ahead of time and figure out how much you’re able (and willing) to spend on:
The down payment
The total cost of the car (known as the “cap cost”)
The mileage limit (i.e. how many miles your lease allows you to drive per month before the lease company charges excess-mileage fees)
The buyout or purchase-option price (i.e. what you must pay at the end of the lease if you choose to purchase the car).
Learn the Tricks of the Trade
We all know that when a salesperson says he has to go in the back to “check with his manager,” chances are he’s playing good cop/bad cop with an imaginary person to sweat you out. But that’s not the only sneaky tactic up his sleeve.
Lease or Buy
You decision to buy or lease depends on three factors. 1. Are you planning to keep the car longer or you like to change cars every 2-3 years? 2. Do you need to have monthly payments smaller but are willing to pay forever as long as you own the car? 3. Do you drive more than $12,000 miles per year?
Many carmakers periodically offer highly discounted lease specials to pump up interest on slow-selling models. These specials could provide a shortcut to substantial savings for you. Be careful when you see these kind of specials. This is the way to get you in the door. Once you are in the showroom, the salesman will act as if he knows nothing about it. So make sure to remind them and use the offer as the starting point of the negotiation process. Nearly every carmaker has lease specials posted on its website. The cars in these lease specials are usually priced below the manufacturer suggested retail price (MSRP) and often represent a good deal.
Look over your contract before signing
Make sure the contract matches your agreed-upon sales price and terms (length of the lease and mileage). In addition, most contracts will include an acquisition fee and many also call for a disposition fee. Security fees are becoming rare. Also, verify that the lease contract includes GAP insurance. (via https://www.nerdwallet.com/blog/loans/7-steps-getting-great-auto-lease-deal/)
Never give the dealer a chance to “lose” the keys to your trade-in
If you plan to trade in your old car, find out how much it’s worth and factor that into your budget. If you think, your car is worth a lot, and it’s not, you may be in for a shock when you reach the lot. Knowing as much as possible before you leave your house is the key.
Bring a spare set of keys with you to the dealership. When they ask for the keys to your trade in, give them the spare. Some dealerships will use your car keys to hold you hostage if a deal is not made. You want to avoid this, so make sure you have the ability to walk out of the dealership at any time without having to ask for your keys.
Show up with a download of car prices from the Internet
Using a pricing website, such as Kelley Blue Book, Edmunds.com or the National Automobile Dealers Association, find the fair market value sales price for the car you want to lease and its invoice price. The invoice price is roughly what the dealer paid for the car and it represents the lowest price you are likely to find. On some models, however, there are many factors — such as customer cash rebates — which could allow the dealer to price the car even lower than invoice.
Research the proper trade in value of your current car
If you have a vehicle you plan to trade in, visit Kelley Blue Book to find out how much it’s really worth so the dealer doesn’t shortchange you.
Sell the vehicle
When you lease a car, you still technically own the car — you get a title and everything! This means that at any point before your lease is up, you can (usually) sell the car and the lease to someone else. If your car’s value doesn’t depreciate as fast as the manufacturer estimated when it leased it to you, it’s considered to have “equity.” If your leased car has equity, you may be able to use that as a downpayment on your next leased car when you return the car to the dealer. (via https://www.policygenius.com/blog/car-lease-deals-technology/)
Close-End Lease vs Open-end Lease
Always go with close-end lease and never with open-end lease.
Show up on the lot with no idea of what you want
Do your research ahead of time to find out what makes and models are the best for your needs, and also give some serious thought to the options you can’t live without and those you can.
Take a test drive
Once you’ve narrowed your list to a few models, take each car for a test drive. Pay particular attention to comfort, visibility, braking, steering, internal noise and shock-absorption.
What is my interest rate?
The interest rate is called the “money factor” in leasing jargon.
The dealer converts the interest rate into a mysterious-looking decimal number. To convert the money factor back into an interest rate, multiply by 2,400. So if the money factor is 0.00125, multiply it by 2,400 to get 3 percent.