Leasing a car is very common and allows for people to use a car through monthly payments while still saving their money. Leasing is advantageous due to depreciation costs (the largest cost of owning a car) being absorbed by the leaser rather than the consumer. Maintenance costs can also be absorbed by the leaser.

However, it is important to do your homework first before leasing any car! Unfortunately I learned this the hard way myself, and ended up leasing a car that I wanted to buy when the lease was up. However, this was not established from the beginning so the purchase terms when my lease was up were horrible.

So we have researched all the best tips and advice on what to consider when leasing a vehicle and compiled that information in this article for you.

Do Your Homework

1. Make sure leasing is right for you

Leasing is beneficial in certain situations and buying is better in others. Consider the positives and negatives of leasing a car:

Negatives:

  • You don't own the car when the lease is up
  • Leasing several cars over a longer period of time is more expensive than purchasing a single car
  • You may have to pay fees if you go over a certain (usually yearly) mileage, cause damage to the car
  • Any repairs are likely done when you return the car at the end of the lease at your expense using the leasers auto-shop

Advantages:

  • You can drive a car with a retail price you can't afford
  • If you want newer models you can trade in every year for the latest model
  • Flexibility of ownership - maybe you only need a car temporary or an additional car for a limited time, leasing is perfect in this case
  • For business owners in some cases you can expense the car ownership costs against your business

2. Calculate your budget and what you can afford

Find out your total monthly expenses including rent/mortgage, insurance, food/groceries, gym, internet etc. Include everything! Now determine what is left over from your monthly income. Use this to determine how much of a monthly payment + insurance + gas you can afford. Set yourself a budget and stick to it. Going into debt to finance a car you can't afford is setting yourself up for trouble later.

3. Choose your dream car (that you can afford)

Again it is important to start with calculating your budget so you don't go over it and jeopardize your future financial situation. Once you have that number in mind, the fun starts! Just remember visiting dealerships: you will be speaking with  highly trained salesmen. They will try to convince you to upgrade and push you to your maximum budget, consider only telling him a lower budget amount to help you walk out with a good deal.

  • Higher Gas Mileage - finding a car with higher gas mileage will save you significant money in the long run so it is worth considering this when picking your vehicle.
  • Low Insurance Premiums - before you go shopping call your car insurance provider to find out if there are any models that have lower insurance premiums. Some leases include insurance, this just means the include it in your monthly payment so getting your own insurance could save you money.

4. Take your top car choices out for a test drive

This tip is important. Don't tell the salesman that you are looking to lease. This will change how they approach the sale with you. Take the car or cars that interest you out for a test drive and see how it feels. Consider the following:

  • Head and legroom
  • Controls / Control panel
  • Engine Power
  • Visibility and blind spots
  • Seating
  • Handling

5. Secure financing for down payment before you go to the dealership

If you will need financing for a down payment on the lease make sure to secure this financing with your bank or credit union before you go to the dealership. Financing is sometimes offered at the dealership, but these are normally very bad deals.

Getting the best Automotive Lease Deal

1. Negotiate the final purchase price first

The final monthly payment amounts are based on the final purchase price of the car. This is negotiable and there are some flexibility in the final purchase pricing depending on your negotiation skills and how badly the dealership wants to sell. Make sure to get this in writing before you proceed so the salesperson can not step back and hoodwink you later.

  • Know the invoice price of the car - this is the price the dealership paid for the car. While you won't be able to pay this amount, somewhere between the retail price and invoice price is where you should aim for.
  • Walk away if the salesperson does this - one trick car salesman use is something called a "four-square" worksheet. This is a sleight-of-hand trick dealerships sometimes use a lot in order to confuse customers about their options. Tell the salesperson you will walk away unless they put that tricky piece of paper away.

2. Once the purchase price has been agreed upon and put in writing, negotiate lease terms

Most of the time increasing your down payment can reduce your monthly payments. However, if you spend some time hunting for a deal you may be able to get a low monthly payment with 0 down payment.

  • Know your Capitalized Cost - capitalized cost it a fancy term for your total cost for the vehicle including the negotiated price, acquisition cost and destination fee. This is everything else other than the monthly payment that you'll be paying to lease the car.
  • Consider your Capitalized Cost reductions - these can include down payment, trade-in credit and rebates.

3. Walk away if something doesn't feel right

The walk away move can be very affective in any negotiation situation. Just be ready if they try to call your bluff. I have personally used this method in situations from flea market negotiations to job promotions. However I always use it with the mindset that I am truly ready to walk away, so if they call my bluff, I keep on walking.

When it comes to car purchases and leasing there are many tricks, "additional fees", confusing options and sales systems that have been honed in order to take advantage of customers preferably without you realizing it.

If something does not seem right, or if you feel you are being taken advantage of. Politely walk away. Most of the time this will motivate the salesman to level and be honest with you. Tell them you are a straight shooter and you will not tolerate any tricks.

4. Know your car's residual value

The residual value is the value of the car after your lease is up. A lower residual value at the end of your lease means you can purchase the car for cheaper if you choose to do so. However this means you use up more of the car's value effectively making your monthly payments have a hidden cost. For example if the purchase price was $20,000 and your residual value is $10,000 at the end of a 3 year lease your monthly costs are $10,000/36 or $277 not including interest and fees.

5. Don't focus too much on the monthly payment that you forget to consider the fees

Dealerships recognized at some point that low monthly payments attract more customers so they hide the cost reductions in fees raising the capitalized cost considerably. They realize that after negotiating for several hours haggling over a $200 fee here, a $30 monthly guarantee and a one time $650 fee is not worth it. This is a psychological tactic that can be very effective, don't let them use it on you!

  • Disposition fee - this is a fee dealerships charge for turning in a leased vehicle and then not leasing a new vehicle from the same dealership
  • Purchase fee - a fee dealerships often charge if you decide to buy the car at the end of your lease
  • These fees are all negotiable - most people go along with them as they are already attached to the car, the time spent and just want to finish the deal. Consider the walk away tactic if you are not able to get them to budge here.

6. Check for rebates associated with the car

Check the manufacturer's website for any rebates for leasing the vehicle you are interested in. Most of the time these rebates are applied to the down payment of the car although sometimes they may reduce your monthly costs. Remember that the dealership may claim that certain rebates don't apply, do not trust their word on this and check it yourself.

7. Read the lease agreement

It will most certainly be a boring read. But you should be aware of your financial responsibility for maintenance and repairs, any hidden fees, return and vehicle purchase terms.

8. Enjoy your new car!

Also make sure you pay your lease on time and pay very strict attention to mileage usage as per your leasing contract to avoid extra costs when you return the car.