Bankrate: How to negotiate a car lease

Allison Martin | Bankrate.com (TNS)

Are you considering a car lease to ride in style for a fraction of what you would pay to purchase a new vehicle? Learning about the car lease process, including brushing up on the industry terminology and the ins and outs of lease agreements, is an important part of landing a good deal.

Shopping around and exploring the specials and offers from multiple dealers is another valuable step to help you negotiate a car lease confidence, ensuring that you get the best possible lease agreement for your needs.

When you walk into a dealership to buy a new car, the car salesperson expects you to offer below the asking price. This isn’t always the case with lease deals, but you can follow this step-by-step approach to negotiate a car lease.

1. Learn the jargon

It is easy to get overwhelmed with the language of lease agreements, especially if you don’t work in the automotive industry. However, you can give yourself a slight advantage by learning the jargon dealers use before you are sitting down to sign a lease contract. Here are some common lease-related terms used by dealers.

Acquisition fee

The acquisition fee, which is sometimes also referred to as the assignment fee, or even the origination fee, is assessed by the dealer to create the lease. This fee can range from $395 to $895, according to Edmunds.

If you don’t have the cash to pay the acquisition fees upfront when initiating the lease, it can be rolled into your monthly lease payments.

Buyout price

A lease buyout typically involves purchasing a leased vehicle at the end of the contract, or in some cases prior to the contract’s scheduled end date. The buyout price is the amount the dealer would charge, should you opt to take this step.

Cap cost reduction

Cap cost reduction — or capital cost reduction — are any up-front payments that lower the amount you finance. This could include trade-in credits, incentives, rebate amounts and even making a larger down payment.

Disposition fee

Disposition fees cover the expenses associated with cleaning the vehicle and getting it in tip-top shape for someone else to purchase after you return it.

Gross capitalized cost

The vehicle’s sales price, also known as the market value, is the gross capitalized cost.

“This is a fancy term for the price of the vehicle plus any other fees, balances, and taxes,” says David Undercoffler, editor in chief of Autolist.

Residual value

Residual value is a projection of what the vehicle will be worth at the end of the lease. This figure is determined by depreciation and industry data.

“With the residual, the seller is estimating what the car will be worth when you turn it in,” says Mike Quincy, auto tester and writer for Consumer Reports. “It’s set at the beginning of the lease and used in calculating your base monthly payment.”

2. Research deals

A quick Google search of “special lease offers” isn’t enough to get the best deal. Take your search a step further by making a list of all the specials you find, and consider broadening your search to areas outside of your city.

Once you have a list of lease incentives on your favorite makes and models, call each dealership to confirm the details. You should also inquire about any other offers not advertised online.

Researching deals can also give you the upper hand. Use deals offered by other dealerships as leverage to get a matched or better deal.

3. Start the negotiations

Once you pare down your list, schedule a visit to the dealership. Test drive the vehicles you are considering and start the negotiations. Try negotiating the following items.

Buyout price

Do you plan to purchase the vehicle at the end of the lease? If so, the dealership may be willing to cut you a deal on the buyout price.

“This is a good cost to negotiate at the beginning of the lease if you think there’s a decent chance you’ll want to buy the car at the end of the lease,” says Undercoffler.

Negotiating the buyout price upfront is particularly important because it’s not typically possible to negotiate this expense once a lease ends.

Gross capitalized cost

Dealerships often use a low monthly payment as a selling point to entice customers. However, you should always try to negotiate the vehicle’s sales price, which is also its gross capitalized cost. By negotiating, you may be able to get an affordable monthly payment without having to resort to extending the lease term.

To get a firm grasp on vehicle value, check out sources like Kelley Blue Book and Edmunds for current cost averages.

“The gross capitalized cost will affect the monthly payment and also the final buyout figure of the vehicle. This cost is 100% negotiable,” says Nathan McAlpine, owner of CarMate, an auto broker business.

In some instances, however, such as when a dealer is offering a specific monthly lease special, this cost may be harder to negotiate. In such cases, the lease terms are usually preset, says Undercoffler.

Mileage allowance

Most leases limit the number of miles you may drive — often to 10,000 to 12,000 miles annually. And if you exceed this annual limit, there will be a penalty to pay. Don’t be tricked into accepting a low mileage allowance if you drive a lot. Instead, request a higher allowance at a discounted rate when initiating the lease, in order to save yourself money when you turn the vehicle in.

“If you know you’ll be driving more than the mileage allowance, it’s a very good idea to negotiate a higher mileage cap for an up-front fee, or no fee at all, rather than getting hit with the per-mile penalty when the lease is over,” says Undercoffler. “Just know that if you negotiate a higher mileage cap, it’s going to decrease the residual value of the vehicle and the buyout amount, since the car will theoretically have more miles on it.”

When negotiating your mileage allowance, it’s important to know about how many miles per year you typically drive. “If you pay for extra miles up front, you won’t get your money back if you don’t use them,” says Quincy.

Money factor

The money factor acts as the interest rate you pay for leasing the vehicle. If you have very good to excellent credit — typically 740 or higher — you shouldn’t have a problem securing the lowest interest rate the dealership offers.

4. Seal the deal

You’ll want to review the entire lease agreement before you seal the deal. Lease agreements generally include the following information:

—The required down payment, if any.

—The cost of the lease, also known as the money factor or rent charge.

—The value of the car at the start and end of the lease.

—The annual mileage limit.

—A detailed fee schedule that includes the cost of wear and tear, excessive damage and other charges you could incur at the end of the lease.

—The cost to end the lease early.

What can’t be negotiated

While you can negotiate several fees, there are limits. Unfortunately, you won’t typically have much luck negotiating the following:

—Acquisition fee: Dealerships generally won’t waive this administrative fee but will allow you to roll it into your lease payment if needed.

—Residual value: This figure is also non-negotiable as it accounts for depreciation and industry data. Plus, lowering the residual value too much means the dealership could lose money if you decide to purchase the car instead of turning it in.

—Disposition fee: This covers the cost of putting your leased vehicle back onto the market.

The bottom line

It is possible to get a good deal on a car lease, but you’ll want to do a little legwork before visiting the dealership. Not only is it important to learn the jargon dealers use, but you should also compare offers from multiple dealerships, learn what’s negotiable and read the fine print on the lease agreement before sealing the deal.

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