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:
- Negotiate the purchase price down
- This is really the only aspect you need to negotiate. I usually request the invoice price to make it a quick step.
- Negotiate the residual price up.
- 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.
- 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.
- Negotiate the interest rate down.
- 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.
- The interest rate on a lease is called the “money factor.”
- Some manufacturers offer something called multiple security deposits (MSD), which can reduce the interest rate further.
- I consider a good lease to have an interest rate between 0% and 2%.
- Remove unnecessary fees.
- Sometimes dealers tack on additional fees, so it’s important to check if any unnecessary fees were added.
I hope this helps!