Leasing a car is not as easy as you would imagine. It takes sustained negotiations to squeeze a low-priced lease deal for a brand-new, high-end vehicle from a salesperson. But do you know how to negotiate a car lease?
Whether or not you have leased a car, you can learn how to do it like a pro. This article explains the terminology in car lease negotiation, the things you can and cannot negotiate, and how to beat the salesperson at their own game.
How to Negotiate a Car Lease
Just because it’s cheaper than financing doesn’t mean you should throw money away on a car lease. In just a few steps, you should be able to squeeze every dollar from the car lease price. Get immersed in the process below:
Method 1: Know the Car Leasing Terminology
Car leasing has a distinct terminology from that of car buying. Before entering a lease, you must familiarise yourself with the terminology to learn how leasing a car works. The following are some of the most important terms to learn beforehand:
- Lessor/Lessee: The lessor is the dealership from which you’re leasing the vehicle, while the lessee is the person leasing the car.
- Closed-End Lease: A closed-end lease is one in which you agree upon the vehicle’s future value at the beginning of the lease. Thus, even if the car is worth much less when you return it, you won’t owe anything to the dealership. Instead, the dealership must bear the cost of additional depreciation.
- Gross Capitalised Cost: The gross capitalised cost is the price of the car plus additional fees and services agreed between the lessor and the lessee. It is similar to the vehicle’s total cost.
- Acquisition Fee: The acquisition (assignment or origination fee) is paid upfront at the beginning of the lease term. Sometimes, the dealership rolls it into monthly payments for those who cannot afford to pay the acquisition fee upfront.
- Rent Charge: The rent charge is applied to the gross capitalised cost as a percentage and is similar to interest on a car loan. It is also called the money factor.
- Disposition Fee: The leasing company may charge you a disposition fee when you return the vehicle. It caters to the cost of reconditioning the vehicle for resale once you return it at the end of the lease period.
- Residual Value: Residual value is the vehicle’s expected future value after factoring in depreciation. The dealership determines the residual value by assessing the vehicle’s ability to retain its value after the lease.
- Buyout Price: The amount the dealer will charge is you opt to purchase the vehicle at the end of the lease. You may agree on this price upfront or when the lease ends.
Method 2: Research the Available Best Car Lease Deals
Before you approach a dealership and start to negotiate a car lease, first carry out thorough research on the available deals. Focus on the car models you would like to lease. At any time, there are numerous advertised specials and manufacturer incentives for those wishing to lease cars. Search online for these and more.
Do you know how to negotiate a car lease, yet? Remember to consider the vehicle’s manufacturer suggested retail price (MSRP). If the vehicle’s sales price at the dealership is higher than the MSRP, try to negotiate it down to reduce the expected depreciation. Once the depreciation reduces, the monthly payments also reduce, all other factors remaining constant.
Method 3: Check Out Multiple Dealerships
When researching the available lease deals, ensure you check out multiple dealerships. That way, it is possible to compare prices and lease deals on the vehicles you want. It can help you to get the best deals possible.
If you get a good deal from one dealership, try to see if another dealership can beat it. The essence of this strategy is to pit car dealerships against each other to squeeze the best possible deal. Please take a good deal once you find it, or keep shopping for something better. That’s how to negotiate a car lease and get value for your money.
Remember to ask the dealership for any car models they can offload on their lot. If you have no problem leasing any other car model, you can get a reasonable price. Simply choose another car model with similar features and get a fantastic deal.
Method 4: Negotiate the Lease
You need to visit the dealership and talk to the salesman. After test driving the vehicle, you can start negotiating the lease. However, not all items on the lease are negotiable. The following are some of the items the dealer would be willing to negotiate:
- Buyout Price: If you intend to purchase the vehicle when the lease is over, negotiate on the buyout price. Negotiating the buyout price from the get-go makes it easier to plan to buy the vehicle. If you wait until the end of the lease, you wouldn’t be able to negotiate the buyout price.
- Disposition Fee: The dealership can exempt you from paying the disposition fee if you do not intend to return the vehicle or swap it for another one. Negotiate the disposition fee from the start to avoid mishaps that may come at the end of the lease.
- Gross Capitalised Cost: Most dealerships use a lower monthly payment to entice customers. But there’s no guarantee that the monthly fee will be as low as you would like. You should negotiate the vehicle’s gross capitalised cost or sales price. You may get a cheaper monthly payment without resorting to an extension of the lease term. However, where the dealer has an offer on the monthly cost, it can be more challenging to negotiate.
- Money Factor: The money factor is the interest rate on the gross capitalised cost. It is much lower if your credit is at least 740. You can convert the money factor into a typical interest rate by multiplying it by 2400.
- Mileage Allowance: Most car leases have mileage limits of between 10,000 and 12,000. Exceeding this limit attracts a penalty. Therefore, you should avoid a low-mileage lease if you drive a lot. You may ask for a higher mileage allowance before you sign the lease to prevent unnecessary per-mile penalties. However, that will reduce the vehicle’s residual value and buyout amount.
Method 5: Seal the Deal
After negotiating every aspect of the lease deal, you must review it before appending your signature. When reviewing the lease agreement, be sure to analyse it in terms of the following contents:
- The down payment, if the dealership requires any
- The money factor or a rent charge, which is the cost of the lease
- The vehicle’s initial value and its expected residual value
- The annual mileage limit
- Early termination fees
- A schedule showing the cost of excessive damage, wear and tear, and other charges
Once you’re satisfied with the contents of the lease deal in terms of these aspects, you can go ahead and sign the contract. Then, you can ask the salesperson to deliver the vehicle to your office or home. That way, you’ll avoid having to take any of the expensive extras.
The Bottom Line
Now that you know how to negotiate a car lease, why don’t you get a suitable vehicle? After searching for lease deals from several dealerships, pick one that interests you the most. You may approach a dealership with prices from a rival to see if they can reduce their costs.
Another helpful strategy is to opt for a different car model than your favourite. Once all is set, you should review the contract before appending your signature. However, you may not negotiate on aspects such as acquisition fees and residual value.
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Frequently Asked Questions (FAQ)
Even though it’s possible to negotiate on many aspects of a car lease, not all of them are negotiable. The following are some of the car lease aspects on which you cannot negotiate:
1. Acquisition Fees: The acquisition fee is administrative, and dealerships won’t allow you to negotiate. However, they may allow you to skip paying it upfront and instead factor it into the monthly payments.
2. Residual Value: The vehicle’s residual value is non-negotiable since it depends on industry and depreciation data. Besides, the dealership would lose money if the residual value is lower than expected when you purchase the vehicle.
When negotiating a car lease, focus on the buyout price, disposition fee, gross capitalized cost, money factor, and mileage allowance. Some dealers may tell you that you cannot negotiate on some aspects of the lease. Insist on dealing and provide alternative prices from that dealers. Ideally, the dealership should be able to beat the price offered by another firm.
Since you’re negotiating for a lease, you aren’t going to pay for its purchase. But that doesn’t prevent you from negotiating the vehicle’s price. By lowering the cost, the dealership basically reduces the depreciation for which you’re supposed to pay. Consequently, the monthly payments will be more affordable.
You’ll know you have a good lease deal if the residual value is high, the money factor low, the fees low, and the inclusion of conquest or retention offers. In the end, these aspects should significantly reduce the monthly payments on the lease.