|November 16, 2003|
Wheel and deal. There's always wiggle room to negotiate the cost of leasing, says Tarry Shebesta, president of Automobile Consumer Services, Cincinnati, an independent leasing firm. He says consumers should negotiate the auto's purchase price before even discussing leasing. This method could reduce your payments by lowering the sales price the lease is based on. Negotiating the vehicle's overall price is most important, because it'll have the biggest effect on your monthly bill.
Other things to negotiate: acquisition fees, down payments and disposition fees (what you pay at the end if you decide not to purchase the vehicle). Don't sign anything until the terms are settled and written into the contract. Also, don't accept the first offer. Fees and terms can differ significantly from one lender to the next, so shop around before settling on one. (Independent lenders often sell better lease terms than what dealerships offer.)
When it comes to cost, don't tell the dealer what you can afford in monthly payments. Always negotiate on overall price.
Know your residuals. Lease terms are built on residual value -- the auto's predicted worth when the lease ends. Residual values often can't be negotiated since they're set by lenders, not dealers. That's why you should comparison-shop between lease offers for the best residual-value estimate.
Here's how it works: Your monthly payment is based on the negotiated sales price minus the residual value and any down payment you make. So if you've got a 39-month lease on a $30,000 vehicle with a $17,000 residual, your monthly payment would start around $333. (Or $13,000 divided by 39 months.) Other fees usually are added on to that, so the payment would be a bit more.
This means a higher residual is usually better, since it lowers your monthly payment. While it's hard to get a precise estimate, check out Edmunds.com's "True Cost to Own" database. It gives estimated depreciation on most new autos up to five years down the road.
When the lease ends, you have the option to "buy out" the vehicle for its residual value. If the auto is worth more than the residual listed in the lease, it's wise to buy it for that amount or less, if possible. If it's worth less than the residual, either return it or bargain with the dealer for a competitive price. Chances are they'll accept a lower price so they don't have to hassle with selling the used car.
Pin down costs. All leases contain "money factors"-monthly fees you have to pay on the lease, similar to an interest rate. But getting dealers to reveal money factors can be a tall order. In fact, sometimes only the dealer's finance manager will know the money factor on a particular vehicle. But finding it out is key to knowing whether you're getting a good deal.
"If you are financing a car, you'd know what the interest rate is," says Tony Langenderfer, an auto-buying consultant in Sarasota, Fla. "Leasing should be no different."
You want a lease to have a money factor similar to or less than the interest rate on a vehicle loan. Money factors usually are quoted in mysterious-sounding figures such as 0.00212. To see what this means in the real world, do a simple calculation: multiply the money factor by 2,400. For instance, a 0.00212 money factor (times 2,400) equals 5.09, equivalent to a 5.1% yearly interest rate.
Another expensive fee: excess mileage. If you drive over the allotted miles in the lease (typically 10,000 to 15,000 each year), you'll be charged, usually around 18 cents for every mile over. You can buy extra miles before signing the lease for about eight cents each.
Roll in the costs. Dealers often ask lease signers to pay up-front costs including a $200 to $850 acquisition fee mandated by the lender, deposit and down payment. But experts suggest it's best to get any costs you can't altogether eliminate rolled into the lease so you pay them monthly rather than ahead of time. Why? If the lease must be terminated, you won't lose all the money you spent up front -- just the amount you paid through monthly payments. Also check that "gap insurance" -- the insurance that covers you in case the auto is totaled -- is included in the lease and not an extra cost for you. Some lenders don't include it.
Write to Kelly K. Spors at email@example.com