Very few people have enough money to simply buy a new car outright, which means when purchasing a new vehicle, you will probably be looking at financing options to fund it.
However, for some people, another option that could be worth investigating is leasing – but the process is a little different from buying a car with finance, and to get the best deal, you need to know what you’re doing. To help, here’s a guide to how to negotiate a car lease.
If you want a preview of some of the things we’re going to be talking about – as well as a couple of extra tips – you can check out this video before reading on.
How to Negotiate a Car Lease
1. Understand how leasing works
The key to getting the best deal is making sure you have a good understanding of how leasing works. Before you decide to lease a car, do the necessary research so that when you begin the negotiating process, you know what you’re talking about.
2. Know the jargon
Once you have educated yourself about the basics of leasing as well as all the pros and cons, you need to make sure you know the jargon – because it’s not the same as when buying a car on finance.
Important terms include some of the following:
- Capitalized cost
This refers to the price of the vehicle.
- Cap cost reduction
This is anything other than the negotiation process itself that reduces the capitalized cost of the car.
- Residual value
This is one of the most important terms to understand. When you lease a car, you are essentially paying for its depreciation – plus fees and interest – and not the whole value of the car.
The residual value is a professional estimate of what the car’s value will be at the end of the lease.
- Money factor
This is the interest you pay on the money used for the lease. It is similar – although not quite the same – as the interest rate on a finance deal.
- Buyout fee
This is the amount you will have to pay if you choose to buy the car at the end of the lease. It might not be the same as the residual value.
- Acquisition fee
This is essentially an administrative fee for preparing the lease.
- Disposition fee
This is a fee you pay at the end of the lease. It is the money required to prepare the vehicle for resale as a used car.
3. Know what you can and can’t negotiate
Once you know the jargon, you need to understand which parts can be negotiated and which can’t. This will help you focus on the parts of the lease where you can secure a better deal.
As with buying a car, the equivalent of the price of the car – the capitalized cost – can be negotiated, and the money factor (interest rate) is also up for discussion.
Other points you can try to negotiate include the capital cost reduction, the buyout cost, the mileage allowance and the trade-in value.
However, the residual value is a professional estimate, and the dealer won’t change it. The acquisition fee, registration and taxes are also not usually negotiable.
The disposition fee might be negotiable when you return the car – if you agree to lease a new one – but it isn’t when negotiating the initial lease deal.
4. Do your sums beforehand
Before you head to a dealership, you should do your sums carefully and work out what you can afford – you need to do this accurately rather than making a rough guess.
Also, when you enter the negotiation process, make sure you work out the total amount you will be paying over the course of the lease to see if you’re really getting a good deal.
Do this yourself and don’t let a salesperson do it for you. You need to understand the figures yourself.
5. Research prices
Spend time looking at prices. Again, the more knowledge and information you have, the better the position you will be in for negotiating a good deal.
6. Shop around
Don’t just go to one dealership – go to several. This will give you a better idea of the prices and deals available, and you may be able to use offers quoted in one dealership as leverage to get a better deal in another.
7. Look for special deals
A top tip to remember is that if you look around, you might be able to find a special deal. For example, if a car isn’t selling well or if a new model is on the way, dealers may have incentives to shift them.
This means if you are willing to search, you may find some particularly advantageous deals.
8. Be flexible about the model you drive home
Related to #7 is that if you are willing to be more flexible over the model you drive home, you are likely to find a better deal than if you have your heart set on one particular model before you start.
9. Think about mileage
The mileage allowance is an important consideration when leasing a car since if you go over the limit, you will usually end up paying a fee per mile – which can turn out to be quite expensive when you return the car.
The mileage allowance can be negotiated. Make sure you the mileage allowance you secure is sufficient for your needs.
10. Be careful about add-ons
Dealers often try to make extra money from a deal with add-ons. Be very careful about this since they are often not financially advantageous for you. Something like gap insurance offered by the dealership is an example of something that falls into this category.
11. Check the contract before signing
As with any contract, make sure you read and understand everything before signing. Make sure there are no blanks in the contract and satisfy yourself that everything is in order.
Unfortunately, it is not unheard of for more unscrupulous dealers to alter contracts after you have signed.
Educate yourself as much as possible
This short article is intended as an introduction to this topic rather than a comprehensive guide. It should give you an idea of the kind of things you need to know about, but you should try to do as much research as possible before you begin looking for a leasing deal.
As we already mentioned, the more information you can arm yourself with and the more clued-up you are, the better your position for negotiating the best deal.