How to get a Good Lease on a Car

Cars with low residual values are not good candidates for leasing

Leasing is a great way to finance a car. My mother negotiated a bad lease in the 90’s, and that’s how I remembered car leases. I did some research on this topic, and I changed my mind. I enjoyed leasing a couple vehicles myself.

Leasing a car is not financially savvy per se because it’s a financing method usually offered only to new cars, and new cars have a steeper depreciation curve. However, if you are looking to purchase a new car, it can reduce cash outflow and avoid the risk of purchasing a lemon, which are critical benefits to many people.

What is a lease? Leasing is a different way of purchasing a car. You’re primarily paying for the depreciation of the car during the lease period.

Who are candidates that are qualified for a good lease? Anyone with good credit is qualified. Even if you are not qualified for a good lease, there may be good options based on incentives from manufacturer.

How can you get a good lease? It’s important to know what’s negotiable in a car lease. Basically, you want to minimize the depreciation and the interest rate on the loan.

Here’s a basic guideline that I follow:

  1. Negotiate the purchase price down
    1. This is really the only aspect you need to negotiate. I usually request the invoice price to make it a quick step.
  2. Negotiate the residual price up.
    1. Manufacturers usually release residual values for each vehicle via percentage. Finding the right model and mileage usage combination to get the highest residual value is important to reduce depreciation.
    2. Some vehicle models do not have good residual values. I would avoid leasing vehicles that are below 60% residual after three years, but it depends on mileage allocation per year, etc. This value will determine whether a 24-month, 30-month, 36-month, or x-month lease is more advantageous.
  3. Negotiate the interest rate down.
    1. Manufacturers usually release promotions for leases every month, so if you research what they offer for your desired vehicle, you can request the manufacturer rate.
    2. The interest rate on a lease is called the “money factor.”
    3. Some manufacturers offer something called multiple security deposits (MSD), which can reduce the interest rate further.
    4. I consider a good lease to have an interest rate between 0% and 2%.
  4. Remove unnecessary fees.
    1. Sometimes dealers tack on additional fees, so it’s important to check if any unnecessary fees were added.

I hope this helps!

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