Leasing a car instead of buying suddenly is hot. Around 25% of the new cars being driven off dealer lots now are leased, not purchased—up from just 11% in 2009—because attractive lease terms once again are available.
Unfortunately, many lessees aren’t getting those attractive deals. The car-leasing process has some complex aspects and unfamiliar terminology, and some dealerships take unfair advantage of the resulting consumer confusion.
Warning: Advertised lease specials often are not as appealing as they seem. Manufacturers sometimes keep the monthly lease payments in these offers low by allowing just 10,000 miles per year, rather than the usual 12,000, or by requiring steep down payments. Example: Audi’s advertised lease specials often ask for $4,000 down, much more than lessees normally pay.
To get a good lease deal…
Examples: Toyota, Honda, BMW and Mercedes-Benz vehicles generally hold their value quite well. Most American-brand vehicles tend not to hold their value as well. Those that do are the Jeep Wrangler and Ford Focus.
Exception: It’s OK to visit a dealer lot to test-drive a vehicle, but don’t let the salesperson talk you into his/her office.
When you request quotes, specify lease length, mileage allowance, money- down preferences and the options packages that you want. Also ask whether taxes will be included in the quote—they usually are not. Helpful: Not sure what details to tell the dealership to include in the quote? Three years, 12,000 miles per year and around $1,000 down usually are the best lease options. Lease for longer than three years, and by the end, you might not be driving a car that seems new and is trouble-free. Most car owners drive around 12,000 miles a year—though it is fine to specify 10,000 miles per year if you’re sure you won’t drive more than this.
Locate the True Market Value and Dealer Invoice Price of the vehicle on the Edmunds Web site. (On Edmunds.com, at the very top of the page, select the make, model, options and year of the car, then scan down the page.) Note that the True Market Value might be below the invoice price if, for example, there is a manufacturer’s rebate on the car.
If the capitalized cost listed on the lease-offer work sheet is higher than this True Market Value, subtract the Dealer Invoice Price from this capitalized cost.
E-mail or call the dealership and say, “I see this lease is based on a capitalized cost of $X above (or below, if that is the case) invoice. My research suggests that this car currently is selling at $Y above (or below) invoice (subtract the Dealer Invoice from the True Market Value to find this second figure—in many cases, these numbers will be quite close). I’m looking for a dealership that will lease to me at that figure.” Try this first with the dealership that offered the lowest monthly payments, but try the others, too, if the first won’t give you a capitalized cost very close to True Market Value.
To convert a money factor to an interest rate, multiply by 2,400. Example: A 0.00125 money factor converts to 3% (0.00125 x 2,400 = 3%). If the resulting figure is higher than the going rate on a car loan, you might be paying too much. This usually isn’t something that the dealership can negotiate—money factor is set by the bank or leasing company. Still, a high money factor could suggest that the bank or leasing company considers you a risky borrower. If that doesn’t seem right and you’re not in a rush to get a new car, obtain copies of your credit reports (available at AnnualCreditReport.com) and scan for errors that could be lowering your score before leasing.