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Stepping onto the car lot and negotiating a deal for a new set of wheels is intimidating; most folks are not professional negotiators and the sales professionals understand how to make the best deal for the dealership.
However, with just a few tips, anyone can get a great deal when setting foot on the lot.
First, it is vitally important to understand the distinction between a car lease and a car loan.
These are two completely different transactions and change how people handle their automobiles. It is imperative to understand how leases work to make car leasing work for every type of individual.
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Car Leases vs. Car Loans
There are several reasons to choose a lease over a loan. These reasons are often deeply personal and have to do with finance along with how the car will be used during a period. By understanding the different values of leasing a car versus buying a car, consumers can make more informed decisions.
Monthly Payment
When it comes to monthly payments, often the lease payment is far cheaper than the purchase payment when all things are equal. For people who are on smaller monthly incomes, this means they have a reliable car for less cash each month. This is a very important for people who are working building income.
Saving on Down Payments
Instead of blowing savings on the down payment for a car that would be kept for several years, leases should never require a down payment. This is a shrewd strategy for personal finance.
How Rough Car is Treated
For people who are prone to hard driving including getting dings and dents on cars, the lease is not ideal because it involves a lot of back end payments when the car is returned. In those cases, it’s best to purchase a car outright.
Amount of Driving
Leases come with mileage requirements that are typically 10,000, 12,000 or 15,000 miles per year. If you go over the contracted mileage in a lease, you will pay a fee usually between 15-30 cents per mile.
Business Travel
People that are traveling for business experience great tax benefits when it comes to leasing cars. Car loan interest is not tax deductible but the depreciation of a car due to business travel along with other considerations merit folks looking at leases for a new car.
Duration of Time with Car and Warranty
For people who love a car and can see spending years with a car, the better option is the loan. People who are ambivalent about the vehicle they are driving are better served by a lease. They can move from one car to the next within 3 years without fail.
Also, when leasing, your car will always be under a warranty. Most bumper to bumper warranties last 3 years, which is also the average length of a lease.
Early Termination
With car leases, it is important to think about early termination. These are in many ways more costly than an outright purchase. Cars with loans can be traded in. Cars with leases are subject to early termination clauses.
Car Depreciation
For people who have car loans, they are subject to depreciating costs. Frankly, the car loses a ton of value the moment it leaves the lot. With a lease, this loss of money is not something that the driver must eat. Instead, the car is turned in at the appointed time.
Customizing a Car
For car buyers, there is a love of customization. This can’t be done with a leased vehicle. The vehicle must be returned as it is sold. This is something very important to consider. People who love modifying cars should steer clear of a car lease to avoid other fees.
All these questions should be answered long before a person decides to buy or lease a car. Understanding personal proclivities is very important for ensuring the right vehicle finance choice. One of the most important things to do is consider personal finance. This is where decisions should start.
Once the personal budget has been figured out, it is imperative to check down the list of other considerations. The bottom line is if a person does not love cars, then they should avoid a car they are attached to for a long time. Therefore, car leasing is a good choice. There is a finite time with a car.
Tips to Negotiate a Better Lease
Once a person has decided that a car lease is the perfect way to get a new set of wheels, a bunch of other things must come together. The biggest thing is not being afraid to negotiate. Just because professionals know the terrain doesn’t mean a cagey buyer can’t get the right deal for themselves.
The bottom line is, for anyone looking to negotiate a car lease, there is one big rule to live by: be willing to walk away. Once it is known exactly the terms of a lease must be, there must be a willingness to walk away because otherwise the car salesperson has all the power. Walking away empowers the buyer.
Armed with information about vehicles, lease terms and fees, along with a willingness to walk away unless the right deal is procured are hallmarks of the profile of an ideal car lease. Get the information needed to beat the dealer at their own game. The tips below make sure people can get the right leases.
1. Never Set Foot on the Lot
All inquiries should be made online or via phone. Stepping on the car lot adds desperation to the aura of a person looking to lease a car. Being on the lot gives the sales and finance folks an advantage. Seeing the car makes a person more desperate to lease a car and thus plays into the hands of the car dealer.
So, how does one negotiate without setting foot on the lot? Simple. E-mail is perhaps the best way. Get all the terms on paper and negotiate where there is transparency and a paper trail. The dealer is less likely to slip things in at the last minute. This is important because once terms are agreed upon that is the moment to set foot on the lot
Also, when heading onto the lot and having the terms agreed upon, the dealer is unable to wiggle out of a previous verbal contract because it is written. Make sure to do all communications by e-mail or phone.
The dealer will try to get you to come to the lot, but don’t fall for that siren call. Stay remote. This keeps you emotionally unattached to the vehicle and allows clear decisions to be made.
2. Nitpick the Contract
Before ever signing on the dotted line, read through the contract with a fine-toothed comb. This contract is binding and once it is signed, the terms are ironclad. There’s no alleviating the lease and once broken could be costly. Reading the lease is vital to success.
There are many parts to a lease contract. Some things the dealer can negotiate on and others are non-negotiable. Here are the different parts of the lease to understand and negotiate:
Mileage Limit
This is how many miles are allowable per year. The reason lessors include mileage limits in leases is to predict the value of the vehicle upon completion of lease terms. It’s important for folks to negotiate this part of the contract because it reduces penalties when correctly bartered.
Most leases are 10,000, 12,000 or 15,000 miles per year. Make sure you know how many miles you will drive to avoid any mileage penalties when you turn in the lease.
Add-Ons
These are the things the dealership tries to slide into a contract that should never be agreed upon. The things to avoid are items like extended warranties, roof racks, theft protection, nitrogen-inflated tires, gap insurance, and so on.
The reason to avoid add-ons is simple – the lessor has a high markup on these items. All of the add-ons can be found via third parties at a cheaper cost. Stripping out add-ons will appreciably lower the cap cost.
3. Know the Negotiable Fees
Financing can be tricky but once the jargon is understood, it is easy way to negotiate better terms. Here are the parts of a lease that are negotiable:
Dealer Discount
Dealers have a lot of latitude on the discounts they can offer. The goal is to keep turning cars over and the cost for dealers is low. That cost gets high if the car sits on the lot. Therefore, they have discounts and other levers to pull to make deals.
You can search online for car buying forums to see what sort of discounts others are getting. You can also check TrueCar for ideas on pricing. Watch for dealers playing games. This discount is separate from any incentives offered.
Interest Rate (Money Factor)
The best deals are available to customers with great credit. Work to get credit in the high range. Once it’s above 750, this gives the person seeking a lease a lot of buying power. Because a high credit score means you’re reliable, the lessors will be eager to make a deal.
They will get their money back and then some, so work to lower that rate by shopping around with other finance departments.
Find out the base money factor for the year, model, make and lease terms (mileage and length of lease) by asking on the Edmunds forums. Request that base money factor and demand they show you that’s what you’re getting before you sign.
4. Non-Negotiable Fees
Just as what’s negotiable is important, so is what’s non-negotiable. Here are the items to avoid negotiating on. Spending time haggling over these items only will make the finance department more entrenched about not offering the best deal on a lease:
Residual Value
Organizations like Auto Lease Guide (ALG) and others set what’s called a residual value. This value is adhered to strictly by the dealer. The reliability of these figures is similar to the authority Kelley Blue Book has.
Acquisition Fee
This is a set banking fee for doing the lease. Dealers will often times try to mark up this fee, so check it by searching for the base acquisition fee for leasing the make of your car.
Disposition Fee
This is an end of lease cost and finance departments typically don’t waive these fees unless there is a new car leased from the same car maker or dealer. Basically, these fees are only waived if there is continuing business. It’s paid after you turn your lease in and is in your lease contract when you sign.
Registration and Taxes
These are fees not set by a dealer. Like all things with government, just pay it and move on. The dealer has to pay taxes too, and they don’t want to pay a dime more than they have to.
5. Get Knowledge on Financing
Doing research is critical when searching for the best deals. For people interested in leasing cars, there are two places to look when checking out areas for negotiation within a lease.
6. The 1% Rule
Some research is required, but this rule allows for folks to get the best rate and build a budget. The bottom line is a monthly payment on a car should be for what it averages around at retail – not what the dealer wishes to sell it for.
The 1% rule means a vehicle that is selling, on average, for $25,000 should be no more than a $250 monthly payment with just first payment due at signing on the average 36-month 12,000-mile lease. Ideally, the goal is getting the payment lower. However, this 1% rule is a good barometer. Finance departments begging you to go higher should be ruled out.
7. Don’t Be Standoffish
There are plenty of different places to get tips for leasing but as with anything in life, kindness certainly helps. Car salespeople are just that – people, and they are looking to make a deal without too much fuss. Being standoffish and belligerent is problematic.
When arriving on the lot, the salespeople seem to circle like vultures. There are a few keys to establishing a rapport – be approachable, direct, and affable. The salesperson will try to make a deal, but if a rapport is established and they like the client, they do anything to make the sale.
8. Learn Some Hacks
Leasehackr is an excellent forum for finding out different tips and tricks to getting the best lease on a desired car. The tips and tricks can be found in many ways, but in the end they all come down to spending as little money as possible for a leased car.
They offer a valuable forum with lots of helpful people and current deals as well as a calculator that will help you determine how much a lease should cost based on several factors.
Here are some hacks to getting a great deal:
Shopping Quotes Around
Finance departments won’t just take your word that you are getting a great quote from someone else. Get all quotes in writing, and then share the quotes with other finance departments. The key is to communicate only in e-mail or the phone. E-mail is best because this means the finance offices are putting everything in writing.
Once you have a quote that no other dealer will match or beat, you know you’ve gotten the best deal possible.
Using a Lease Broker
For people who have too many things to do, the research for car leasing is one extra thing. Lease brokers are folks who work to get the best terms on a lease for a buyer. Their fees are typically paid by the dealer.
The benefits of working with them are they provide the know-how to get great deals. The drawbacks are the fees. That said, lease brokers are excellent for a host of reasons – chief among them is they know where the negotiation points are and how to get the best deal quickly.
It can save you time and money. In most cases, this may be your best option.
Looking Up Incentives
The best way to look up incentives is by using the AutoByTel site. Navigate to the year, make, and model you want, choose incentives and enter your zip code. Note that not all incentives apply to leases. Incentives also change month to month.
Alternatively, you can check the websites of the various car companies to see their current incentives.
Don’t Negotiate Monthly Price
This seems counter-intuitive for a car leasing tip, but the reality is dealers are extremely savvy about how they price their cars for leases. The monthly payment is the sticker, but there is always more behind the sticker than the dealer shows on the sticker.
Don’t let them hide fees and markups in a monthly price.
9. Money at the Signing Table
There are a couple rules when finishing up a lease deal that should always be adhered to. These rules are designed to ensure that getting a car lease isn’t something that bankrupts the person getting in the car.
Never Put Cash or Use a Trade In as a Down Payment
Never put any cash down on a lease. Never use equity in your trade as a down payment either. If you drive your new lease off the lot and total it, that money disappears. If you have equity in your trade, request it in a check to be delivered to you when you sign the lease papers.
Under no conditions should you put any money down on a lease.
Down Payment vs. Due at Signing
Anyone who ever made a big business deal like a house or car knows that down payment is one thing and what’s due at signing is another. The down payment does not cover items like taxes and other fees.
These fees are baked into the leasing agreement and depending on the nature of the fee they can be negotiated. That said, a down payment goes towards the cap cost while the money due at signing goes to the other ancillary costs.
Paying fees like taxes, doc fees or acquisitions fees at signing are acceptable. Down payments are not acceptable.
Multiple Security Deposits
This is an easy way to protect yourself against things that can happen to a car. By putting down multiple security deposits, what is being offered to the finance office is protection against a loss – especially in terms of damage.
These deposits lower the money factor, or interest rate, because the person taking the lease is taking risk away from the bank. Ultimately, the finance office’s job is protecting their investment, so they can make money. MSD’s allow some money to be paid in exchange for lower monthly fees.
MSD’s are returned to you at the end of your lease.
Willingness to Walk
The intensity of a car negotiation is something most people are not prepared for. There are a few reasons. The first is dealers work on commission, so they need to sell cars to eat. Literally. It makes for ravenous salespeople and usually a poor time for buyers.
Never feel intimidated! The salesperson is there to make a deal. They have the pressure, not the buyer. If a buyer does not like the car or the salesperson is being too pushy, do not succumb to that pressure. The best buyers are ready to walk away politely but firmly and get great deals.
The Value of Production Dates
On every sticker there is loads of information, including gas mileage and price. These are very large because they are designed to distract from one of the most important pieces of information required to appear on a car sticker: the production date.
Production dates are when cars roll off the assembly line. The farther back the date is, the more desperate the dealer is to get rid of the car. Knowing this date allows for the upper hand in a negotiation. Dealers hate having dead stock, and these cars are the very definition of that term.
The In-Office Offers
Once the finance office has the paperwork and the terms have been agreed, they always try to upsell. The bottom line is they’ll offer products like gap insurance, warranties, and service plans. These items tack on vast amounts to monthly payments and essentially have little value.
The reality is third party vendors provide better insurance and maintenance services. Be firm on not taking these products, as the finance office will push the hard sell on them.
Get A Great Lease Today
There are tons of great resources for buyers who are looking to save money in different places. Car leases are no different. A cursory internet search will find many different lease negotiation strategies combined with some great lease deals. The reality is buyers need to take time to educate themselves.
With the same research techniques folks use to manage their personal finance are applied to car leases, buyers save oodles of money. There is no hidden cost lurking around the way to knock a buyer off their perch. Instead, these buyers show up to the lot and are ready to get the best leasing deals out there.
When looking to lease a car, make sure to go through the above checklist to determine if the lease is the right idea. Once it has been determined the lease is the way to go, apply the tips found here. These tips assure buyers that they will have no problem getting the best bang for their buck.
