Car-lease incentives: what you need to know

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If you’re considering leasing a car, there are a few important things to know about car-lease incentives. Incentives for auto leases are a bit different from the incentives, also known as rebates, offered when you buy a new car.

What are car-lease incentives?

Car-lease incentives are just like they sound: incentives to encourage you to lease a car.

Automakers often offer car-lease incentives and promote them on their websites, as well as through commercials, radio and direct-mail ads. The goal of car-lease incentives is to make leasing a specific type of car more affordable and enticing.

Types of car-lease incentives

There are several types of car-lease incentives you may come across, including:

Cash rebates

The cash rebate that is offered when you buy a new car can sometimes be applied to a lease. This rebate is set by the manufacturer and is for a flat amount. Any restrictions on it are spelled out on the automaker’s website, usually in the fine print under the offers section.

Subsidized interest rates

Also known as a “lease deal” for a specific monthly payment, a subsidized interest rate is where the auto manufacturer offers a lower rate for customers with good credit if they use the automaker’s lending arm, such as Ford Credit or Toyota Financial Services.

You’ll need to compare this interest rate with financing you obtain on your own through another lender to see which is better. Make sure you are comparing all the specifics of the lease terms to ensure an accurate comparison.

Subsidized residual values

A subsidized residual value is the percentage of how much the manufacturer wants to set the car’s depreciation at. The higher the residual value, the lower your monthly payments. An automaker will usually offer a subsidized interest rate or a subsidized residual value on a car, but not both. Often, the details aren’t very obvious, so you may have to ask.

The perks of car-lease incentives

If you can lock in a car-lease incentive, you may get these benefits:

  • Lower payments: You may enjoy lower monthly payments, which can free up your cash flow and make it more affordable to drive the car you want.
  • Little to no money down: You may be able to lease a vehicle with little to no down payment. If you’re short on cash, this incentive may be particularly appealing.
  • Cash rebates: You can get a cash rebate just for leasing a car. You may receive a check from the automaker or apply the money toward the total cost of the lease.
  • A better car for less: You may go home in a car with all the bells and whistles at a price you can afford. If you’ve always wanted to drive a certain vehicle but don’t have the money to buy it, an incentive may help.

Know your state

While car-lease incentives come with notable advantages, they do have one major drawback: Some states tax car incentives and rebates. If you live in a state that does, you may have to pay taxes on the full price of the vehicle before the incentive is applied.

You don’t have to worry about this if you live in one of these states that don’t tax incentives:

Alaska Louisiana Nebraska Rhode Island
Arizona Massachusetts New Hampshire Texas
Delaware Minnesota Oklahoma Utah
Iowa Missouri Oregon Vermont
Kentucky Montana Pennsylvania Wyoming

What to watch out for

If you come across a car-lease incentive that’s too good to be true, it probably is.

Keep in mind that if an automaker offers you a lower monthly payment or hefty cash rebate, for example, it may charge costly fees for going over your mileage. The automaker may also require a balloon payment, which is a larger one-time payment at the end of the lease. If your budget won’t allow you to make this payment, you may put yourself in a bad position.

Final considerations

Car-lease incentives can help you decide which vehicle to lease. If Toyota and Honda SUVs are the same price but Toyota has a $1,000 cash rebate, it may make more sense to go with the Toyota. Before you jump at any car-lease incentive, however, read the fine print.

Make sure you know exactly what you’ll get. If anything is unclear or doesn’t make sense, ask the automaker or dealer. The last thing you want to do is accept an incentive and be stuck in a lease that you can’t afford or simply don’t like.

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Written by
Anna Baluch
Contributing writer
Anna Baluch is a personal finance freelance writer from Cleveland who enjoys writing about debt, mortgages, student loans, personal loans and auto financing.
Edited by
Associate loans editor