How to Successfully Negotiate the Terms of Your Car Lease
Did you know that you can negotiate the value of the vehicle, capitalized cost reduction, length of the lease, mileage allowance, and options and equipment when you’re leasing a car? Here’s all you need to know to get a great deal.
• The agreed-upon value of the vehicle — just as you can negotiate the price of a vehicle when you buy it, you can negotiate the value of a vehicle when you lease it. The agreed-upon value of the vehicle is the primary component of the gross capitalized cost, so the lower this value is, the lower your monthly payments will be.
Manufacturers, dealerships, or lessors sometimes offer special incentives that reduce the agreed-upon value of the vehicle. If this is the case, you may not have much room to negotiate.
In any price negotiation, it helps to know the lessor’s cost for the vehicle. You can get dealership cost information from a variety of sources on the Internet and from publications that are available in most public libraries. Use this information to help you negotiate the agreed-upon value of the vehicle.
• The capitalized cost reduction (cap cost reduction) — the capitalized cost reduction for a lease is like a down payment when buying a car. The more you pay to reduce the capitalized cost, the lower your monthly payments will be. The trade-off is that you have to pay the cap cost reduction up front, and you may not have the lump sum amount or you may want to do other things with that money.
Ask how different cap cost reductions will affect your monthly payment (for example, if you pay $1,000 instead of $3,500, what would your payments be?).
Most lessors restrict the maximum cap cost reduction you may make. For example, the maximum may be 20% of the MSRP or 20% of the value of the vehicle.
As an alternative to paying a higher cap cost reduction, you might be able to reduce your rent charge, and thereby lower your overall costs, by paying a higher security deposit
You may also want to consider a single-payment lease as an alternative to paying a higher cap cost reduction, if it will reduce your costs.
Some lease offers are based on a specific cap cost reduction. If you see a lease offer that is appealing to you, be sure to check the cap cost reduction and ask how the other lease terms and conditions would change if you paid more or less up front.
• The length of the lease — most leases are for 24, 36, 48 or 60 months (2-5 years). However, you may negotiate a lease for just about any period in between. Keep in mind, though, that not all lessors offer all terms — for example, some offer only 24- or 36-month leases. Occasionally you may find leases with terms shorter than 24 months or longer than 60 months.
Sometimes you may find a lease for a period other than a full year–for example, 39 months instead of 36 months. Such a lease may be a special offer. For example, the lessors may use the same residual value for the longer term as for the shorter term, thereby spreading the depreciation over more months and reducing the monthly payments.
When evaluating such a lease offer, be sure to compare all the other lease terms in addition to monthly payments. Unless the lessor is making a special offer, such as in the example, negotiating a different term for your lease will change the residual value in the monthly payment calculation.
The longer the term of your lease, the lower the residual value will be (because the vehicle will be older when you return it). Thus, you will pay more in total depreciation with a longer-term lease.
Try to match the length of the lease to your needs and preferences. Negotiating a longer lease will generally lead to a lower monthly payment, but deciding to end a longer lease early could be costly. In a closed-end lease, the opportunity to avoid unexpected depreciation and walk away occurs only when you have completed the full term of the lease and paid any amounts owed.
• The mileage allowance — common annual mileage allowances in leases are 10,000 miles, 12,000 miles, or 15,000 miles, but you can negotiate other limits. Many lessees drive more than 14,000 miles a year. Try to match the miles you will be driving to the mileage allowance in the lease.
If you think you’re going to be driving more miles than the lease allows, it’s generally better to negotiate a higher mileage allowance in the lease than to pay for the extra miles at the end of the lease. On the other hand, if you think you’ll be driving fewer miles, you may be able to save money by choosing a lower-mileage-allowance lease.
A lower-mileage lease will generally specify a higher residual value for the vehicle because a vehicle with fewer miles is worth more and is expected to have less wear. This higher residual value means that you will pay less for depreciation and your monthly payments will be lower. In contrast, a higher-mileage lease will generally specify a lower residual value for the vehicle because a vehicle with more miles on it when it’s turned in is worth less than a lower-mileage vehicle.
Therefore, you’ll pay more for depreciation during the term of the lease. And if you don’t use those miles, you may not be entitled to a refund at the end of the lease. If the lessor has a refund policy, it should be stated in the lease.
• Dealership- and consumer-installed options and equipment — just as when you buy a car, you can choose the features you want and add accessories to a leased vehicle. You may want to upgrade the sound system, install a leather interior, or add a sunroof to the vehicle.
It may be preferable to have those items included in the lease rather than added after you lease the vehicle because if the lessor considers the equipment, for resale purposes, as adding value, the equipment will increase the residual value of the vehicle.
You would then pay only for the expected amount of depreciation of the equipment during the lease, not for the full cost of the equipment. However, lessors often have different policies for determining what is value-adding equipment.
Adding an extra feature may increase your personal enjoyment of the vehicle, but it may not appreciably increase the vehicle’s resale value at lease-end. Ask the lessor about its policy on any equipment you want to add.
Also, in some cases, lessors will not let you add something if removing it may damage the vehicle or reduce its value. For example, you may not be able to add a trailer hitch, a luggage rack, or a mount for a car phone unless you are willing to leave it on the vehicle.
Be prepared to negotiate the price for any of these features and accessories. It helps to know the lessor’s costs for these accessories and features.
You can get dealership cost information from a variety of sources on the Internet and from publications that are available in most public libraries. Use this information to help you negotiate.
You may also be asked if you want to sign up for a service or maintenance contract or for rust-proofing, fabric protection, undercoating, and so forth. These services are optional, and their prices can be negotiated.
You’ll need excellent negotiating skills when you lease a car. By using the above tips, you’ll soon be leasing your vehicle at very favorable terms.
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