How to Negotiate a Car Lease
Most of us look forward to negotiating the price of a car with the anticipation of, say, a root canal. We just want it to be over.
On the other hand, we want to feel reasonably sure we didn’t pay more than we needed to. And for a lot of us, that’s harder to do when we are leasing than when we are buying. Did we pay too much? What’s the car’s price, anyway? And how does that relate to what we paid for the lease?
First, although leasing is not the same as purchasing. both are ways of financing a car. And in both cases, the consumer needs to be looking carefully at the overall price, even as the salesperson is likely trying to turn it into a conversation about monthly payments. (Yes, you’ll want a monthly payment you can afford, but do be aware of how many months you’ll have to pay it. Good rules of thumb are no more than three years if you’re leasing or five if you’re buying.) The price — often called “capital cost” in the paperwork — is the number that is likely to be the most flexible. Many of the other figures involved in a lease are outside the dealer’s control.
Getting to a dealership’s best price on a lease can be similar to price-shopping for a car, says Phil Reed, senior consumer advice editor at Edmunds.com: You can contact multiple dealers, and ask them for their best quote. To make sure you are comparing the same thing, you’ll want to specify the length of the lease and mileage per year. Also ask about any fees required to start the lease (acquisition fees) or end it (disposition fees), and the residual (the price you would pay if you wanted to purchase the car at the end of the lease). One big difference between buying and leasing is that you will almost certainly get your lease financing at the dealer; it’s not like checking with your credit union, and knowing you have something to compare against whatever the dealer can offer. Reed said that if dealers know you’ll be comparing prices, chances are good they will respond with their best price.
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What to Watch Out For
But when you go into a dealership, you can’t stop being careful. Reed said to watch for “switcheroos” involving mileage, money down, options or the length of the lease. He also pointed out there is no need for an extended warranty, because the car will be under warranty for the life of the lease. He said some dealerships offer “wear-and-tear” insurance, which can be a good idea if you have young children.
Matt Briggs, automotive finance expert and CEO of Credit Jeeves, says if you feel uncomfortable or pressured, get up and leave — “it’s the most powerful negotiating tool you have.” But hopefully, you won’t have to do that.
Both Reed and Briggs suggest doing your homework and knowing (and negotiating) the car’s price. However, the price isn’t the only thing that affects what you’ll pay per month. Reed says. Part of what your lease covers is the expected decline in value of a car. And that can make some luxury cars an especially good deal. As an example, Reed said to imagine that a $50,000 BMW depreciated to $40,000 in three years. But a competing luxury car that cost $50,000 new was expected to be worth just $20,000 in three years. It would make sense for the BMW to have less-expensive lease payments, he
said, because “when you lease, you are paying for that decline in value, plus interest and taxes.”
Are There Certain Cars You Should Lease?
That said, Briggs and Reed had some advice on which cars to lease. Both said they would lease electric cars rather than buying them (Reed is leasing an electric vehicle) because the technology is changing so rapidly it’s hard to know what values will be after three years. Reed would broaden that to any alternative-fuel vehicle. He said luxury cars or any other cars that hold value well are good candidates for leasing because depreciation is slow. Briggs said he would prefer to lease foreign luxury cars that are expensive to fix, naming Jaguar and Range Rover. “I don’t want to own them outside the warranty.”
Reed said that he has also sometimes advises young adults to lease rather than buy. He mentioned a young woman who had her first “real” job with a long commute. She could afford a $6,000 used car. He advised her to lease instead — to get a car that had the latest safety equipment and would be under warranty — and to keep that cash for emergencies.
As with buying, you’ll want to go into negotiations knowing your credit scores (if you don’t know yours, you can see two scores for free at Credit.com. and they are updated monthly). In general, you’ll need a score of at least 650 to qualify for a lease. And with a lease you will want to pay as little upfront as you can. (If you are buying, the opposite is true. Paying more at signing can give you some instant equity and can keep you from being tempted to extend payments far into the future so that you can afford them. If that’s a temptation, you may need to look at less-expensive vehicles, or perhaps consider a lease.)
And once you have all those numbers from dealers, you may find that there’s not a whole lot of difference in dealers’ “best prices.” That’s the time to pay attention to intuition. You know which dealership is most convenient. If you’re really lucky, it’s also where you felt most comfortable. Because in the end, “it’s a people business,” Reed says. And, he notes, you haven’t failed if you did not get the lowest price anyone has ever paid. “It’s OK for the dealer to make a profit,” Reed says. “And it’s OK for the salesman to make a commission.” What you want is to drive away feeling the deal was fair.
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Gerri Detweiler is Credit.com's Director of Consumer Education. She focuses on helping people understand their credit and debt, and writes about those issues, as well as financial legislation, budgeting, debt recovery and savings strategies. She is also the co-author of Debt Collection Answers: How to Use Debt Collection Laws to Protect Your Rights . and Reduce Stress: Real-Life Solutions for Solving Your Credit Crisis as well as host of TalkCreditRadio.com. More by Gerri Detweiler
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