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Leasing a car can be an excellent option for some people, but it’s important you understand the language, terms and other details about it before jumping into it.

A car lease is very similar to renting it. You use it for a certain amount of time or miles, and you pay the car company for the time you have the car. At no point do you own the vehicle. 

The difference between renting and leasing is that with leasing you are only paying for the depreciation cost of the car, rather than a percentage of the actual car. 

All dealers have set terms that are used in the lease. But what terms are flexible? What affects the price of your lease?  And, how can you negotiate to get a better deal? 

Dealers might use fancy terms to try and confuse you, but don’t let that scare you. 

We are here to help you be well-informed about how to negotiate a car lease. 

auto warranty

Understanding the Terminology

couple talking to car salesman

One of the most important things when thinking about leasing a car is to understand all of the terms. 

Some of the language might seem confusing and could be misleading if you do not fully understand it. 

We’ve broken down 11 common terms that might be thrown around that you should fully understand before agreeing to anything.  

1. Gross Capitalized Cost 

This is the cost of the vehicle you will be leasing, think of it as the selling cost or the sticker cost of the car. 

This price is used to help calculate your monthly payments for your new leased car. 

Make sure to compare the gross capital cost number to the MSRP (Manufacturer Suggested Retail Price) of the vehicle you are looking to lease. 

If the gross capital cost number is lower than the MSRP number you are most likely getting a good deal.  

2. Cap Cost Reduction

The cap cost reduction refers to anything that brings down the price for the capital cost. Say you have another car you want to trade-in 

3. Net Capitalized Cost

The net capital cost is the gross capital cost minus any discounts the dealer offers and any cash you put towards a downpayment.

4. Residual Value 

The amount your car will be worth at the end of your lease. This is an estimated professional guess. 

5. Rent Charge 

First of all, the rent charge has nothing to do with renting. 

This is just a fancy way of saying the total amount of money you will owe towards your leased vehicle. This can also be referred to as a finance fee or money factor. 

The rent charge is determined after a money factor is calculated. You can think of the money factor as an interest rate that is dictated by your credit score. The higher your credit score, the lower your money factor will be. 

Rent Charge = (Net Cap Cost + Residual) X Money Factor 

6. Acquisition Fee

An acquisition fee is basically just an additional administrative fee covering the costs to create the lease. This does not include registration or taxes due on a new vehicle.  

7. Closed-end Lease

A closed-end lease allows the lessee to buy out the vehicle at the end of the lease term. The value of the buyout is determined at the beginning of the lease, so there are no surprise costs at the end of the lease term. 

8. Buyout Price

This is the amount you will pay at the end of your lease term if you decide you want to buy the car.

9. Purchase Option Fee

This would be the processing fee if you decided to buy the car at the end of the lease term that is tacked on to the final bill.

10. Disposition Fee 

This is a fee for the dealer to prep the car for resale if you don’t want to buy the car at the end of the lease. 

There could also be an additional fee if you go over the mileage or there are damages on the interior or exterior of the car that need to be fixed before it can be put back on the market. 

11. Due at Signing 

This is the total amount of money you will be paying for your car lease. Typically, this includes your down payment, first month payment and, if required, a security deposit. 

Know What the Car is Worth

Now that you are familiar with the terms, you need to know how to negotiate the best deal on your lease.

Just like when you go in to buy a car, you shouldn’t pay the sticker price. 

The price of the car is negotiable.  

Do your research and find out what the price of the car is, or what it should be. You should never pay more than the average price for the car. You can find out the average price of your car at Kelly Blue Book.

Choose a car that is on the lot. Dealers are typically more willing to give you a good deal on a car to get it off of the lot than on one they will have to order. 

What is the Best Deal?

saleswomen at car dealership

When you are looking for the best lease deal, you need to know what you are looking for and just because the deal seems good doesn’t mean it is the best car. 

A good, reliable car is the most important factor. 

Be open to different car models and years. You may find better deals on cars that were not necessarily the car you originally had in mind. 

It’s also important to consider a car that has a high residual value. 

Know What is Negotiable

Understanding what is negotiable is also crucial before going in to chat about a car lease. There are several things that can be negotiated to help you get the best deal. 

Interest Rate

The interest rate, also called “the money factor” and is negotiable to an extent.  

The interest rate is what determines the cost of your monthly finance fee. 

Also, remember that the better your credit score is, the lower your interest rate will be. Focus on finding ways to increase your credit score before you go in to negotiate a car lease. 

Related: How To Build Credit (For Complete Newbies)

Lease Deals and Price Reductions

You can reduce your car price (also called capitalized, or cap cost) upfront by doing these few things.

Trade-ins

Do you have a car you can trade in? This will help reduce the cost of the car. Try to get the highest price you can when you trade-in the car.

If you are unsure of what you should get for your trade-in, you can look it up at Edmunds

If you don’t feel like you are getting a good offer for your trade-in, you may want to consider selling it yourself and putting the cash down as a down payment on your lease, which will also help reduce the cap cost of a leased vehicle.

Dealer Offers

Shop around at different dealers and see if they have any special offers that will reduce the price of the car. 

Let the dealers know you are doing so and this might entice them to give you their best price just to lock in your business. 

Lease Deals

Manufacturers will often offer Lease Deals that will lower payments all around. 

Lease deals tend to only benefit individuals with high credit scores, making it even more important to focus on keeping a high credit score before you consider leasing a vehicle. 

You can typically find lease deals in November and December for the year-end closeouts and then again in May and June when the dealerships are competing for business. 

Note, all lease deals are subjective by location. 

Best Price Program

Check out US News Best Price Program for the best price in your area. They help you find the best deals and lowest cap cost on vehicles near you. 

Simply plug in the make and model of the car along with your zip code and you can see what is available. 

Estimated Expected Mileage

Understand how many miles you realistically put on a vehicle each month. If you currently own a car, start to track your monthly mileage and then calculate out your yearly mileage usage. Make sure to give yourself a buffer. 

Going over your mile limit can be very costly on a lease. 

It’s typical for a lease agreement to have a per-mile cost of 15 to 25 cents for every mile that you go over the cap. If you need to increase your mileage cap, negotiate this in the beginning. 

If you can’t get a lease that will accommodate the number of miles you intend to drive the car, then leasing may not be the right option for you. 

You may want to consider buying a car instead. 

Lower Buyout 

If you think you may want to buy your car at the end of the lease, try to negotiate that price now. You won’t be able to negotiate that after the fact.  

Even if you don’t think you will wind up buying the car, at least have a good option to consider when the time comes.

Add Ons

Add-ons can be sneaky. Make sure you are fully aware of what add-ons will be tacked on to a lease. Add-ons may include things like warranties, paint protection and key protection.

Regular Maintenance

Know before you sign the lease whether regular service visits are included in the lease or if you have to pay for those out of pocket. 

This is determined by the dealer and can also be a costly add-on if you are expected to pay for it. 

Understand What isn’t Negotiable

It’s important to understand what you can’t negotiate so you focus on trying to reduce the price on things that are negotiable. 

Most of the fees below are set and it isn’t worth your time even trying to negotiate. Some of these fees aren’t even set by the dealership so they will not be able to assist in any reduction.  

Residual Value

The residual value, one of the biggest factors to determine the cost of your lease and is non-negotiable. These values are determined by organizations like Auto Lease Guide and are dictated by the market.

Dealer Fees 

Many dealer fees are non-negotiable and are a waste of your time to try and negotiate. 

  • Acquisition Fee - The acquisition fee is the administrative fee for the dealer and they will not budge on this number. They charge this amount to create the lease for you. 
  • Disposition Fee - This is another dealer fee that they will not budge on because this fee goes towards prepping your car for resale at the end of the lease if you decide you do not want to buy the vehicle. 
  • Purchase Option Fee - The purchase option fee is what you pay for the dealer to process your paperwork if you decide to buy the car when the lease is up. 

Taxes and Registration 

Whether you are leasing or buying a new car, you will have to pay registration and taxes on your car before you can bring it home. 

Registration and tax prices differ by state and are non-negotiable. This amount owed is paid to your state not the dealer anyway, so they have no flexibility in the price. 

How is the Cost of the Lease Determined?

car salesman going over paperwork at dealer with couple

Earlier, we mentioned that a lease is based on the depreciated (or residual) value of the car, not a percentage of the actual car’s price. 

So, for example, if you are leasing a car with a total cost of $50,000 and the residual value at the end of the lease term comes in at $35,000, your lease will be $15,000 plus interest, taxes and fees.

To figure out your monthly fee, you take that $15,000 and subtract your down payment, then divide it by the amount of months on your lease terms (usually 24 or 36). 

This is your monthly depreciation payment. You will have a monthly finance charge that will need to be added to that and, voilà, you have your monthly lease fee.

So as you can see, it is really important to negotiate that starting price. 

Do some research and look for a car that has a good residual value. 

You can find cars with good residual values at US News and World Report.

Close the Deal

happy women with new car keys

Once you have everything in place, double-check the deal, make sure nothing additional crept into the agreement. 

You don’t want any last-minute surprises. 

Negotiating a car lease shouldn’t make you feel like you are in a horror movie. 

The most important thing is to do your research. 

Shop around and arm yourself with knowledge. Go in with all the information that you need, all of the costs outlined and you will come out with a great deal.

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Posted 
Jan 22, 2020
 in 
Money
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