Secrets For Negotiating The Cheapest Auto LeaseCar ownership has always been right up with home ownership as a key part of the American Dream. Movies and media have long romanticized the freedom, thrill, and glamor that comes with owning a car, and many of us see a car as a necessity. While a car is certainly useful and may be necessary in many cases, it is also quite expensive. Aside from payments and financing costs, insurance, gas, maintenance, and other expenses pile up very quickly. According to AAA, the average annual cost to own and operate a car is near $8,700 a year. For many drivers, these costs produce significant financial stress, especially as maintenance costs pile up on older vehicles.
Instead of dealing with the high purchase and ownership costs, drivers may want to consider the advantages and savings of leasing a new car. Let's explore the benefits and expenses associated with auto leases and look into some ways to negotiate the best deal possible.
The Benefits of LeasingLeasing provides significant advantages over purchasing a new car or even a used car. You can enjoy the benefits of a new car without having to pay its full market price, use it for a few years, and simply give it back, exchanging it for a new one if you choose to do so.
Leasing a car is like renting the vehicle, but unlike a standard car rental, the car effectively "belongs" to the lessee for a certain amount of time. If you lease a car, you are responsible for the insurance on the car and any maintenance issues that arise. Unlike renting a car, where you pay by the mile, you and the dealership decide on a specific number of miles that you will drive per year, and a term, such as 36 months. Leasing a car is similar to renting a house or apartment, taking custody of the property over a fixed period.
People who choose to lease a car will find that there are fewer overall costs compared to car ownership. Most cars don't start developing maintenance issues until well beyond the standard leasing period. Because the car is usually new, you won't need to deal with high maintenance costs. The only regular maintenance issues you'll need to worry about are oil changes and gas. The average term is now 36 months, with some options for 24 months, so you may need only one tire change during that time, if that.
Cost of Leasing a CarThere are some similarities between payment plans for leasing and buying a car. In both cases, you'll have to:
Make a down payment
Pay a monthly rate based on a certain annual percentage
Pay an initial fee upon "purchase" or "acquisition" of the car
The calculation for car lease payments can get complicated, but you'll certainly have less to pay in fees and payments, as you're not buying the car outright. For example, Edmunds.com notes that leasing a car with a sticker price of $23,000 would possibly cost around $255 a month on a 36-month lease term with a 3% interest rate. Buying a car with the same term (36 months) for the car loan would cost around $669 a month. Even doubling that loan term to 6 years would result in a monthly payment of around $349, still above the monthly lease payments.
Alongside down payments, monthly payments, and acquisition fees, you'll also need to familiarize yourself with other factors:
Lease term: the amount of time you intend to lease the car (usually 36 months or less)
The residual value of the car: the monetary value of the car as a percentage of the purchase price
MSRP of the vehicle: the listed price for purchase (i.e. the sticker price)
The "money factor": The equivalent of an interest rate, used to determine monthly payments for leased vehicles
You should call a dealership ahead of time to understand how all of these topics factor in when calculating the total leasing fee.
How to Negotiate a Cheap LeaseAlthough your local car dealerships try to sell cars as often as possible, they'll maintain leasing options as well.
When leasing a car, the dealership will mostly focus on three things:
Your credit score
The number of miles you intend to drive
The down payment
Depending on your situation, you can use this information to negotiate the lowest price possible for your leasing term. Other factors may come into play during the negotiation process, but these three will play the largest role.
Here are a few tips to help you negotiate.
Know Your Credit ScoreThe dealership will base your rate on your credit score. Although you are not acquiring a traditional car loan, your credit score will still affect the kind of deal they will offer you. The better your score, the lower your rate will be. If you have a poor credit score, it's a good idea to work on building it up a bit before negotiating. If waiting is not an option, know your credit score when you go in and be ready to negotiate. Describing how you'll be working on building up your score during the leasing period will help to convince the dealership personnel of your financial viability. Use your credit knowledge and plans to help negotiate a better price. Demonstrating financial awareness and knowledge will help you present yourself as a lower risk.
Calculate Your Average MileageA car loses value as it gains miles, and the distance you intend to drive each year will determine (in part) how much you will end up paying. Higher mileage leases will have higher monthly costs, while low mileage will have lower monthly costs.
How many miles do you usually cover in a year? Knowing this information beforehand can help you keep the dealership from trying to suggest a higher mileage lease, or prevent you from locking yourself into a deal for more mileage than you can cover. A good way to determine your mileage is to calculate how many miles you normally drive in one week, and multiply that by 52, the number of weeks in a year. For example, if you cover 300 miles a week, that's 15,600 miles a year. However, you wouldn't want to suggest 16,000 miles or less, as you always end up travelling some unexpected distances. The average American drives around 14,000 miles per year, so be sure you know whether you're closer to the average or significantly above it before you go in to negotiate. It's a good idea to give yourself one thousand or two thousand extra miles above what you normally drive to account for the occasional unplanned trip out of town.
Your dealership will charge extra if you go over your extra miles. The overage charges can be as high as $0.25 a mile, so it's a good idea to negotiate your miles as accurately as possible, but also to give yourself some breathing room in the amount as well.
Opt for a Higher Down PaymentIt may be tempting to go for a zero-down deal, but these are going to be hard to come by if you don't have a high credit score. A higher down payment will lower your monthly payment amount and give you negotiating leverage; saving some cash can get you a better deal.
1. "Annual Cost to Own and Operate a Vehicle Falls to $8698, Finds AAA" . Newsroom.AAA.com
2. "Calculate Your Own Car Lease Payment" . Edmunds.com
3. "The Average American Drives This Much Each Year" . Fool.com