Negotiating a car lease deal is somewhat like negotiating a car loan, which always starts with the vehicle price and negotiating the interest. However, discussing the terms that are related to leasing like the loan and contracts agreements are entirely different.
Leasing may sound easy in theory but like anything, it requires some knowledge to avoid any unwanted mishaps. It is a contract that you agree to, and it is important to read and understand it thoroughly before signing to get the best deal and to avoid any issues in the future.
The following tips will provide you with a bit of guidance to help you negotiate a car lease and get the best price when leasing a vehicle.
- Learn the terms and jargon related to leasing
The first thing to do to get a great car lease deal is to understand any frequently used terms well. When the leasing agent explains the deal, you should be able to understand it well and ask them questions. Moreover, it will help you to determine what matters and what doesn’t when leasing a car.
Some of the most important leasing terms are:
- Lessor & Lessee: The leasing company is called the lessor and the person leasing the car is the lessee.
- Residual Value: The estimated value of the vehicle at the end of the lease term.
- Miles per annum: Your average annual mileage. It is very important to estimate it correctly to avoid any penalties or additional fees.
- Initial rental: The first monthly payment you must make. It is usually higher than in the subsequent months. The higher the initial rental, the lower will be the monthly payments and vice versa.
If you don’t understand any terms when the leasing agent explains the deal, don’t hesitate to ask him what it means. Nobody wants to make any mistakes unknowingly.
2. Understand your needs
A good leasing deal is highly dependent on your needs. What may be a great deal for a friend may not be that great for you, and so it is important to know what you want exactly before approaching the leasing agent.
The following questions serve as a good basis to secure a beneficial contract:
- Which car/cars are you looking into for a lease?
- How many miles do you estimate you will drive in a year?
- What do you want to pay as the initial rental?
- What can you afford as the monthly rental for your vehicle?
- What’s your credit score?
Having an idea about all these will let you get a better car leasing deal, as these are the essential numbers related to car leasing.
3. Research the prices and deals from different agents
Once you have an idea of your needs, it’s time to check the leasing deals available for your preferred model of vehicle.
The price of the car is a major factor that determines the monthly payments you must pay. Check the price of the vehicle and what specialities or incentives are included in that. This will all come in handy to understand the deal better.
Although you are not buying a new car, that doesn’t mean that you can’t negotiate the price. Lower price means lower monthly payments, and hence it is always a great idea to discuss this to get a better leasing deal. This might not represent a ‘normal’ negotiation, but rather a discussion about what you desire and how the leasing agent can arrange a contract based around that.
While researching deals,
- Consult multiple leasing agents. Different leasing companies offer different deals, and this depends on their experience, network of lenders and business relationships.
- Ask the prices available for other cars also. Consider the cars which are soon to be replaced by newer models – they may be trying to get rid of them and might offer great deals.
- Ask about the money factor, or the interest rate you’ll pay as a part of your lease. Multiply it by 2400 to get the APR. If it is not around the prevailing APRs for car purchases, negotiate it.
- A good credit score can offer you better deals, like a one-month initial rental. Ask if any such offers are available for you.
Once you choose the best deal out of the researched ones, there’s more room for negotiation.
4. Apply the 1% test.
Now that you’ve been able to assess a few different lease deals, how do you differentiate a good deal from a bad one?
One final trick is to apply the 1% test.
Different dealerships will offer different deals, but you should be choosing the one which is the best for you, considering your financial needs also.
A competitive leasing deal means that you should pay close to 1% of the vehicle’s total cost every month. So, when you test your deal, if you must pay well above 1%, investigate what causes the increment. If it’s justified, go for the deal.
Please note that if you need to cover a higher mileage, your monthly payments will be over 1%.
The 1% test is not necessarily a go-to option to test a deal, but it should give you an overall idea of where you stand.
5. Understand the fees
Apart from the initial rental, monthly payments and the money factor, there are many other fees associated with a car lease. These fees should be investigated to get the actual value of your deal.
- Disposition fee: A fee associated with the sale of the car once the lease term has ended. It is designed to cover the costs for reselling the vehicle and its storage until it is sold.
- Purchase option fee: You may be charged a fee if you have decided to purchase the car once the lease contract has matured.
- Early termination fee: A fee that is hard to negotiate. If you decide to return the car before the ending of the contract, you will be charged a high penalty and possibly a drop in the credit score also.
- Penalty for exceeded miles: You’ll have to pay a fee for each mile you cover above the miles agreed on the lease contract. If you agreed for 10000 and drove 12000, you will have to pay a higher fee for 2000 miles. Estimate the annual mileage accurately to avoid this fee.
The early termination fee is hard to negotiate, but the penalty for exceeded miles can be negotiated to some extent. Don’t forget to compare the penalty fee for different dealerships if you are likely to go above the limit.
Using the above-listed tips, you should feel confident when researching a car lease deal and finding the one that best suits your needs, lifestyle and finances.