The residual value, or value of the car at the end of the lease, is usually set by independent car-value experts. The process of negotiating a car lease can be pretty straightforward. But should you consider leasing a car — or buying one? If the price is right and you like to drive the latest car models, leasing may make financial sense for you.
Even so, you may be better off financially if you purchase a reliable used car and drive it for 10 years or more. Image: Couple looking at new car brochure and thinking about how to negotiate a car lease.
In a Nutshell Learning how to negotiate a car lease is much like learning to negotiate anything else. You need to prepare in advance by researching how car leasing works and learning the terms that are commonly used during the process.
Advertiser Disclosure We think it's important for you to understand how we make money. Negotiating a car lease can be similar to negotiating a car loan in some ways — but with different terminology and standards.
The purpose for this price is to determine how much the vehicle will depreciate during the term of the lease so that you can determine how much you owe while you are making payments. Here's an example of the same car with two different car payments based on nothing other than the residual price difference:. The difference is the Residual Price.
Dealers do not necessarily set residual prices. These are often set by banks that derive these numbers from statistics and reports on the values of vehicles when they are returned from leases. Companies like ALG Automotive Lease Guide provide these values to dealers and banks that use them as a reference point for designing leases. You have more leverage in changing your residual price if you work directly with a leasing company versus through a dealer.
The dealer will rarely present you with options on your residual price. Choosing a higher or lower residual price. For most people, choosing the highest residual price is of no consequence to them - at the end of the lease they simply turn your vehicle into their leasing company and walk away.
At that point the bank has to contend with the value of the vehicle and whether or not the residual is higher or lower than it should be. For others who may consider buying the vehicle at lease end, a lower residual price makes the vehicle itself sound more affordable. But in reality, the consumer is just paying the difference during the term of the lease instead of at the end of the lease.
It's the same amount of money, just over a different time period. Our general recommendation would be to find the highest possible residual price that you can. Again, some lenders may adjust their residual prices to suit their own needs. Among lenders, captive leasing companies leasing companies owned or operated by automotive manufacturers are most likely to do this in order to drive more vehicle sales.
They can afford to create higher residuals because they have the benefit of making more money in the sale of the vehicle. Independent leasing companies those not owned by a manufacturer do not make money on the sale of the vehicle, and therefore need to be more careful about setting higher residual values. With a high residual, your lease end buyout price will of course be higher.
We recommend a higher residual because you may or may not buy the vehicle at the end of the term, but you will certainly make the payments during the term. A higher residual gives you more flexibility during the term of the lease. For more information about researching residuals and lending institutions, see the section entitled " Shopping for your Lease ". The dealership and leasing company rely on independent organizations to set the residual values of new cars.
In a few rare cases, a dealership might negotiate their acquisition fee. If you find them unwilling to do so, ask if they will roll it into your monthly payment. While the disposition fee is often not something the dealership or leasing company will negotiate on, you might be able to convince them to waive it. If you agree to a new lease agreement on a new car from the same dealership or brand, the disposition fee might be waived.
It might go without saying, but the right vehicle for you is not necessarily going to be the same one that your neighbor or your best friend might choose. Choosing a new car that has a high residual value provides you with room to negotiate the lease agreement.
From its selling price to the resale value, the right new vehicle gives you flexible options throughout the lease term. For the best results, though, consider the total lease cost. This includes your down payment, the fees charged by the dealership or leasing company, and taxes. Do some simple math to get the total lease cost.
First, multiply the number of months in the lease term — minus one month because your first payment is usually rolled into the amount you pay when you sign the lease contract — by your monthly lease payment. This includes any fees and charges from the dealership or leasing company. The sum of these two figures is your total lease cost. One of the best ways to negotiate a car lease is to search for lease deals. These are often subsidized by the automaker in an effort to move a new vehicle more quickly.
Taking advantage of a lease deal can reduce the amount due at signing, your monthly lease payment, or both. In many cases, lease deals are available only if you have a great credit score.
Dealerships have a greater incentive to make a lease deal and move new vehicles off their lots than when you special order a new car. Going over that mileage limit can significantly increase the cost of leasing the car.
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