A car lease is an agreement between the lessee and the lessor — typically a car dealership — to drive a vehicle for a limited period of time and an allotted number of miles, for a specific price.
Unlike auto loans, however, car leases are typically for borrowing a car rather than building equity towards purchasing a car.
Find out which type of auto financing agreement — to buy or to lease — is best for you.
Negotiating on a car lease can make a huge difference in the money spent at the time of signing and can save money on the monthly payments.
Therefore, it is crucial to know how to negotiate a car lease.
To help negotiate a car lease so that it fits your needs and budget, take a moment to become familiar with a few tips that can work to your benefit.
Choosing the Right Type of Car Lease Agreement
There are two types of car lease agreements vehicle shoppers can choose between: closed-end agreements and open-end agreements.
A closed-end lease agreement includes the projected value of the leased vehicle.
Unless there is extensive wear and tear to the vehicle or the mileage limit is surpassed, the lessee doesn’t need to pay additional costs on the value of the car at the end of the lease agreement.
In an open-end agreement, if the value of the car is less than expected at the end of the lease term, the lessee is required to pay additional costs at the end of the lease term.
A closed-end agreement is typically the safest option as there are no additional costs based on the projected value and depreciation.
HRCCU also offers an alternative product, GREENLight Auto Loans. This loan product offers lease-like benefits while cutting the extra fees often associated with traditional car lease agreements.
Negotiate the Capitalized Cost
The fees included in the gross capitalized cost of the car lease agreement can be negotiated, sometimes even written off completely.
In addition to the lease or sales price, there are numerous fees that make up the gross capitalized cost.
- License and registration fees
- Guaranteed Auto Protection (GAP) insurance
- Acquisition fees
- Disposition fees
- Documentation or administrative fees
- Down payment
- Security deposit
- Sales tax
- Rent charge
Depending on the lease agreement, some of these fees must be settled at the time of signing. Certain states, such as New York, also require sales tax be paid in its entirety upfront.
Look at each component that makes up the capitalized cost and negotiate them accordingly.
Lower the Sales Price
In many situations, the sales price of the car can be negotiated.
A factor that helps dealerships determine the sales price of a vehicle is the manufacturer’s suggested retail price (MSRP).
A dealership’s proposed sales price on a leased car is typically lower than the MSRP, so knowing the MSRP may be helpful when trying to negotiate a lower sales price.
Comparing prices of similar makes, models, and trim levels at other dealerships could also help to lower the sales price.
If a competitor is offering the same vehicle but at a lower cost, the salesperson you’re working with may find some wiggle room in the sticker price.
Roll Upfront Costs to Monthly Payment
Depending on the state and initial lease terms, upfront costs may apply.
But certain fees, such as acquisition fees, disposition fees, and sales taxes can be redirected to the monthly payments.
Other fees, such as documentation fees, may be eligible for elimination depending on the lease terms.
Ask the leasing company to write off any administrative costs.
Then roll any remaining upfront fees that can’t be written off, such as GAP coverage, towards the monthly payments.
Rolling upfront costs to the monthly lease payment or getting the cost written off reduces the price paid at signing.
Consider Down Payment Options
Consider placing a down payment at signing.
Making a down payment on the leased car reduces the gross capitalized cost and consequently reduces the overall lease price.
Or, if applicable, use the trade-in equity of the vehicle you currently own as a down payment.
In some cases, leasing agreements allow lessees to place a down payment along with a trade-in equity. Choosing this option further reduces the gross capitalized cost.
Compare Rebates & Incentives
Rebates and incentives can help to save a lessee several thousands of dollars on a lease agreement.
Older models offer higher cash rebates than current ones. For instance, a previous-year Honda CR-V model may offer a cash rebate that is $1,000 higher than the latest model.
Look at multiple models of a car and compare the rebates of each one.
Next, compare incentives or lease deals. Incentives to look for include subsidized interest rates and residual values. Most leasing companies only offer one or the other.
Subsidized interest rates are lower interest rates typically offered to lessees with good credit. Lower interest rates result in lower monthly payments.
The residual value of a car is the projected value of the car.
It represents the car’s depreciation during the lease term. A high residual value predicts the car will face little depreciation over the lease term.
Leasing prices are influenced by the residual value. The higher the residual value, the lower the leasing price.
Look for a high-residual value and a low-interest rate, then compare the amount of money that could be saved. Depending on the state, incentives may be taxed.
Discuss Mileage Limits
Mileage limits help determine lease prices. The higher the limit, the higher the overall lease price.
To lower the lease price, accurately calculate the number of miles needed during the lease term.
Subtract the anticipated excess miles from the lease agreement. This can help save money on the lease price so long as the limit isn’t exceeded.
In most lease agreements, there is no refund for unused miles.
Auto Financing with HRCCU
While leasing allows you to drive vehicles outside of your current price-range, it’s worth looking into other options. Refinancing your auto loan may be the right choice for you.