Negotiating a car lease

[freshmanjs]

When negotiating to buy a car (especially with financing), the conventional wisdom is to avoid any discussion of monthly payment. This make sense because the dealers can manipulate monthly payment and charge too much on the price. Balloon payments, loan term, etc can be used to make the payment look low, even in a bad deal.

When looking at lease negotiating advice sites, the same seems to apply. My question is why? In a lease, there are only 3 variables

- capital cost (price of car plus any fees)
- money factor (interest rate)
- residual value

Money factor is typically set by the finance company, although dealers have some flex. Residual value is almost always fixed by the manufacturer for a given lease length.

Therefore, I think negotiating the monthly payment is perfectly fine in a lease. In fact, I think it is logically equivalent to negotiating the price.

Am I missing something? Even if the dealer can mess around with the money factor, I'm indifferent between owing money for cap cost or money factor.

Thoughts?

Thanks!

[Dr. Rosenrosen]

When I was younger I always leased my cars. Essentially it allowed me to “buy” more car than I could afford. But I got really tired of getting to the end of my leases and having to do it all over with basically no equity. (I had one car that kept substantial enough value to be able to have a small down payment toward my next car.) So I started to buy. And it felt better. Until I discovered the beauty of buying cars that had been slightly used. Finding a car with less than a year of driving on it and low miles is the ultimate strategy in my mind. You can afford a little more car and you avoid the first year of depreciation which is always the worst. It’s been a great approach for me.

To your specific question, yes, on a lease it’s all about the monthly payment if you go into it assuming you’re unlikely to finish the lease term with any real value above the residual. The one thing to watch out for is the annual mileage limit. You can pay less if you incorporate, say, a 10K annual mileage limit. But you can ring up a nasty little penalty at the end of your lease if you go over the allowed mileage. So be careful on that point.

[Mtn.Devil.91.92.01.10.15]

God, this is why I love this board. Nothing to add, but thanks.

[rthomas]

When I was younger I always leased my cars. Essentially it allowed me to “buy” more car than I could afford. But I got really tired of getting to the end of my leases and having to do it all over with basically no equity. (I had one car that kept substantial enough value to be able to have a small down payment toward my next car.) So I started to buy. And it felt better. Until I discovered the beauty of buying cars that had been slightly used. Finding a car with less than a year of driving on it and low miles is the ultimate strategy in my mind. You can afford a little more car and you avoid the first year of depreciation which is always the worst. It’s been a great approach for me.

To your specific question, yes, on a lease it’s all about the monthly payment if you go into it assuming you’re unlikely to finish the lease term with any real value above the residual. The one thing to watch out for is the annual mileage limit. You can pay less if you incorporate, say, a 10K annual mileage limit. But you can ring up a nasty little penalty at the end of your lease if you go over the allowed mileage. So be careful on that point.

I used to buy a car and keep them for a decade or more. But, I'm moving to leasing for this: Cars are changing so fast, especially with regard to safety. I think lease a car for a couple years, and see what is new. Soon more cars will be electric and more than likely driverless.

[sagegrouse]

There is a fourth variable -- how much cash you put down up front. I put down about 20 percent up front on my current lease.

The weirdest thing for me was that the monthly charge for a three-year lease was less than a monthly charge for a 48-month lease. Can't happen! But it did. As I understand it, the car company (Acura) wanted cars back that were three years old and was willing to pay a premium.

I am coming to the end of my three-year lease and am undecided. The dealer/car company is offering enticements to stay with them, but I am not sure.

[fuse]

There is a fourth variable -- how much cash you put down up front. I put down about 20 percent up front on my current lease.

The weirdest thing for me was that the monthly charge for a three-year lease was less than a monthly charge for a 48-month lease. Can't happen! But it did. As I understand it, the car company (Acura) wanted cars back that were three years old and was willing to pay a premium.

I am coming to the end of my three-year lease and am undecided. The dealer/car company is offering enticements to stay with them, but I am not sure.

If you consider your money more valuable in your pocket than in a depreciating asset like a car, you should minimize your money down on a lease.
Yes, it makes the monthly payment higher.
With the same residual, you keep the “capitalized cost reduction” (your upfront payment dollars) in your bank account.

[Trippindu17]

Leasing a new car is simple in theory: you’re just paying for the part of the vehicle’s depreciation that occurs during the term of the lease, plus some interest and fees.

You can get a car with the latest technology, safety, comfort features, and a full warranty every few years.

In practice, however, leasing can be a confusing process for the uninitiated.

Leasing has a language that’s different than you’ll hear in auto buying and getting a car loan. Knowing about the vehicle you’re leasing, how the process works, and what is and is not negotiable will get you a great car lease deal.

[sagegrouse]

If you consider your money more valuable in your pocket than in a depreciating asset like a car, you should minimize your money down on a lease.
Yes, it makes the monthly payment higher.
With the same residual, you keep the “capitalized cost reduction” (your upfront payment dollars) in your bank account.

Actually, I was gonna buy the darned car, but the lease terms were too favorable to pass up. Therefore, my decision was a compromise. You may (fairly) argue that, in choosing between two bar stools, there is no advantage to being in the middle -- but that's where I ended up.

[Rich]

There is a fourth variable -- how much cash you put down up front. I put down about 20 percent up front on my current lease.

The weirdest thing for me was that the monthly charge for a three-year lease was less than a monthly charge for a 48-month lease. Can't happen! But it did. As I understand it, the car company (Acura) wanted cars back that were three years old and was willing to pay a premium.

I am coming to the end of my three-year lease and am undecided. The dealer/car company is offering enticements to stay with them, but I am not sure.

If you consider your money more valuable in your pocket than in a depreciating asset like a car, you should minimize your money down on a lease.
Yes, it makes the monthly payment higher.
With the same residual, you keep the “capitalized cost reduction” (your upfront payment dollars) in your bank account.

Plus, if you drive off the lot and the car is totaled, that down payment is gone. I believe your insurance will only cover the payments you have yet to make on the lease. I will usually put $0 down or pay for the taxes and title up front (less than $1000) just because I don't like the idea of paying interest on those and if I lost that $ in the scenario I mentioned I wouldn't look at it as a hardship.

I agree with the original comment in this thread and basically monthly payment is the only thing I discuss with the dealer. I don't consider the other variables since they have no relevance to me. I want the most car they're willing to sell me based on the monthly budget I have in my head. If they can't match the # then I either try to haggle, go for a different model with fewer options, or walk out. But I know after 24, 36 or 48 months, I'm doing it all over again. Only once did I buy a car after the lease, and that was so I knew my daughter was driving a car that was entirely under my care and ownership.

One other thing that has helped me if you have time is to use the phone. Figure out what you want in the car, call a dealer, have them send you a quote, then call another dealer and see if they'll match it with a car with more options or beat the price for a similar car. Oftentimes dealers have cars on the lot that are loaded with options and they'll be willing to sell you that car for the same price as another dealer's car with fewer options just to move them.

Finally, dealers have quotas. You're more likely to get a better deal at the end of the month, at the end of the year, and most certainly, when a new model comes out, usually in the Fall.

[YmoBeThere]

I believe your insurance will only cover the payments you have yet to make on the lease.

If you are speaking about the liabilty and comprhensive/collision coverage you purchase from a property-casualty insurer this doesn't make sense to me. That company is insuring the vehicle not the payment/financing of the vehicle. They may offer gap coverage or the like, but the standard coverages are offered on you, your driving, and the value of the car. The only reason they inquire about a lessee/liemholder is to ensure payment goes to the right location in the case of a total loss.

[budwom]

yeah, you have to get insurance that specifically covers the money you put down, otherwise all you get is the insurance company's view of the current (somewhat depreciated) value of the car. And they don't care about your car payments...

I haven't ever leased, but may in the future given the few miles we now drive...one thing I noted, most dealers reveal what the car will cost you if you choose to buy at the expiration of the lease...but a quick chat one day with a Toyota
dealer revealed that they (at least) do NOT determine that price until the time comes, which I see as a distinct disadvantage...not sure if this is commonplace or not.

[fidel]

If you are speaking about the liabilty and comprhensive/collision coverage you purchase from a property-casualty insurer this doesn't make sense to me. That company is insuring the vehicle not the payment/financing of the vehicle. They may offer gap coverage or the like, but the standard coverages are offered on you, your driving, and the value of the car. The only reason they inquire about a lessee/liemholder is to ensure payment goes to the right location in the case of a total loss.

What you say is true, but Rich is right in a way. We all know cars depreciate as soon as they leave the dealer. You have fully funded that depreciation when you put money down. In the case of an accident, that money may be gone. I believe gap insurance only covers up to what is owed, not total value. It’s an argument against one-payment leases vs a small percentage down. The point is understanding the risk.

My experience with leases: always calculate total cost of the lease. I would never buy a car by negotiating on monthly price, unless I were negotiating exact model for exact model. As options are added to a car (it’s a low monthly payment!) fees can get hidden (additional money factor, residual value not increased, etc).

Leases can be great deals, for many reasons. But you have to know how the game is played.

[Indoor66]

Plus, if you drive off the lot and the car is totaled, that down payment is gone. I believe your insurance will only cover the payments you have yet to make on the lease. I will usually put $0 down or pay for the taxes and title up front (less than $1000) just because I don't like the idea of paying interest on those and if I lost that $ in the scenario I mentioned I wouldn't look at it as a hardship.

I agree with the original comment in this thread and basically monthly payment is the only thing I discuss with the dealer. I don't consider the other variables since they have no relevance to me. I want the most car they're willing to sell me based on the monthly budget I have in my head. If they can't match the # then I either try to haggle, go for a different model with fewer options, or walk out. But I know after 24, 36 or 48 months, I'm doing it all over again. Only once did I buy a car after the lease, and that was so I knew my daughter was driving a car that was entirely under my care and ownership.

One other thing that has helped me if you have time is to use the phone. Figure out what you want in the car, call a dealer, have them send you a quote, then call another dealer and see if they'll match it with a car with more options or beat the price for a similar car. Oftentimes dealers have cars on the lot that are loaded with options and they'll be willing to sell you that car for the same price as another dealer's car with fewer options just to move them.

Finally, dealers have quotas. You're more likely to get a better deal at the end of the month, at the end of the year, and most certainly, when a new model comes out, usually in the Fall.

I don't understand this thinking. How many cars have you totaled? IMO, you are taking "insurance" to an extreme that is way beyond the point of reasonably expected return, but that is just me. I think many tend to over insure and over anticipate disaster.

[PackMan97]

I don't understand this thinking. How many cars have you totaled? IMO, you are taking "insurance" to an extreme that is way beyond the point of reasonably expected return, but that is just me. I think many tend to over insure and over anticipate disaster.

It is much easier to total a car these days.I was in a fairly low speed collision two years ago. The damage to my four year old Rav4 was fairly minor.would have needed a new front bumper and radiator. Less than $3k worth of damge. The other car a new trunk lid and back bumper.no lights broke.there was no crash debris save for his license plate came off. Less than 2k damage to that car.

The big cost was all 9 of my airbags deployed and thus the car was totaled.

With newer cars who knows how much all the self driving sensors are going to cost.

[fuse]

yeah, you have to get insurance that specifically covers the money you put down, otherwise all you get is the insurance company's view of the current (somewhat depreciated) value of the car. And they don't care about your car payments...

I haven't ever leased, but may in the future given the few miles we now drive...one thing I noted, most dealers reveal what the car will cost you if you choose to buy at the expiration of the lease...but a quick chat one day with a Toyota
dealer revealed that they (at least) do NOT determine that price until the time comes, which I see as a distinct disadvantage...not sure if this is commonplace or not.

I’ve never leased a Toyota.
This statement can’t be completely accurate, as a lease is based on residual value.
That residual value is (generally speaking) the purchase price at the end of the lease.

This can work for you, or against you.
As an example, you lease a 40k car and the residual at the end of a 3 year lease is 22k.

The manufacturer could have made a mistake in calculating the residual, and maybe the car is worth 25k. You could consider buying the car and flipping it and try to cash out that 3k. Alternatively, the manufacturer may have made a mistake in the other direction if the car is worth 18k. The dealer will still sell you (the original lease holder) the car off lease for 22k (at which point you’ve made a 4k financial choice).

You could also take a risk, return the car, see how the dealer prices it on the lot post return and negotiate from there.

I missed the window but apparently Jeep had some amazing intro lease deals on the new Gladiator pickup ($150/month for 2 years). That is a huge bet on the Gladiator holding its value for at least two years. The residual and buyout on those leases will be pretty close to buying a new one.

Maybe what your Toyota dealer is suggesting is they allow for some flexibility on a buyout relative to the residual and actual value. Every dealer I have leased from has been very hard line on selling at residual even when I walk away. My guess is if they sell a leased car below residual, someone (dealer or manufacturer) has to write off that loss.

[Rich]

What you say is true, but Rich is right in a way. We all know cars depreciate as soon as they leave the dealer. You have fully funded that depreciation when you put money down. In the case of an accident, that money may be gone. I believe gap insurance only covers up to what is owed, not total value. It’s an argument against one-payment leases vs a small percentage down. The point is understanding the risk.

Yes, that's the point I was trying to make. Years ago you had to ask your insurance company about gap insurance for a lease, but now I think it's standard coverage so it's not even discussed.

[Rich]

My experience with leases: always calculate total cost of the lease. I would never buy a car by negotiating on monthly price, unless I were negotiating exact model for exact model. As options are added to a car (it’s a low monthly payment!) fees can get hidden (additional money factor, residual value not increased, etc).

I guess my point is as long as I know EXACTLY what I'm paying each month and I know what extras/options the car has, that's all I need to know to make an informed decision based on the monthly payment I have in my head when I go into the dealer. That info lets me compare that car with another same model car that has fewer or other options with a different monthly payment. Generally I'm comparing same model cars with different options from different dealerships (or even at the same dealership), not across manufacturers.

[budwom]

What you say is true, but Rich is right in a way. We all know cars depreciate as soon as they leave the dealer. You have fully funded that depreciation when you put money down. In the case of an accident, that money may be gone. I believe gap insurance only covers up to what is owed, not total value. It’s an argument against one-payment leases vs a small percentage down. The point is understanding the risk.

My experience with leases: always calculate total cost of the lease. I would never buy a car by negotiating on monthly price, unless I were negotiating exact model for exact model. As options are added to a car (it’s a low monthly payment!) fees can get hidden (additional money factor, residual value not increased, etc).

Leases can be great deals, for many reasons. But you have to know how the game is played.

I'd quibble that you don't necessarily "fully fund the depreciation" when you put money down...some leases don't require a big payment, yet have substantial off the lot depreciation...

[budwom]

I’ve never leased a Toyota.
This statement can’t be completely accurate, as a lease is based on residual value.
That residual value is (generally speaking) the purchase price at the end of the lease.

This can work for you, or against you.
As an example, you lease a 40k car and the residual at the end of a 3 year lease is 22k.

The manufacturer could have made a mistake in calculating the residual, and maybe the car is worth 25k. You could consider buying the car and flipping it and try to cash out that 3k. Alternatively, the manufacturer may have made a mistake in the other direction if the car is worth 18k. The dealer will still sell you (the original lease holder) the car off lease for 22k (at which point you’ve made a 4k financial choice).

You could also take a risk, return the car, see how the dealer prices it on the lot post return and negotiate from there.

I missed the window but apparently Jeep had some amazing intro lease deals on the new Gladiator pickup ($150/month for 2 years). That is a huge bet on the Gladiator holding its value for at least two years. The residual and buyout on those leases will be pretty close to buying a new one.

Maybe what your Toyota dealer is suggesting is they allow for some flexibility on a buyout relative to the residual and actual value. Every dealer I have leased from has been very hard line on selling at residual even when I walk away. My guess is if they sell a leased car below residual, someone (dealer or manufacturer) has to write off that loss.

I can assure you that in this case the statement was 100% accurate, the dealer (this was only a vague conversation as I waited for my car to be serviced) would NOT disclose the residual value, though of course all the other lease terms were clearly revealed, e.g. initial cash payment, monthly lease payment, # of miles, etc...I told him I'd never sign a lease like that, without knowing the residual value, he insisted they gave you that only when the lease period expired...

I googled up some articles on leases, and indeed you don't always get a firm residual value, many refer to it as an "expert guess."

[sagegrouse]

I guess my point is as long as I know EXACTLY what I'm paying each month and I know what extras/options the car has, that's all I need to know to make an informed decision based on the monthly payment I have in my head when I go into the dealer. That info lets me compare that car with another same model car that has fewer or other options with a different monthly payment. Generally I'm comparing same model cars with different options from different dealerships (or even at the same dealership), not across manufacturers.

Yep. There are a lot of people in different age groups here. For the older, it's often "some assets, little income;" for the younger, it may be "some income, little assets." Anyway, as a member of the older group -- but a lot younger than Hubie Brown -- I HATE monthly payments.