How to negotiate a car lease

Leasing a vehicle instead of buying one is a great way to save money on your monthly payments. Lessees looking to save extra cash should consider negotiating the lease itself. The buyout price, gross capitalized cost, mileage allowance and money factor are all up for negotiation.

Shopping around and exploring the specials and offers from multiple dealers is another valuable step to help you negotiate a car lease confidently. 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 sit 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 $595 to $1,095, according to Edmunds. It can often be rolled into monthly lease payments.
• Amount due at signing: It is the total amount of cash you’ll need to seal the deal, and accounts for the down payment, fees and any applicable rebates and credits you’re eligible to receive.
• Buyout price: A lease buyout typically involves purchasing a leased vehicle at the end of the contract or, in some cases, before the contract’s scheduled end date.
• Cap cost reduction: Also known as capital cost reduction, this covers 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.
• Early termination fee: This figure represents the amount you’ll pay if you choose to end the lease early. It can be costly, as lessors generally factor in the cost of the remaining lease payments.
• Excessive use: If you exceed your mileage allowance, expect to pay an excessive use fee. The same applies to extensive wear and tear on the vehicle.
• Gross capitalized cost: The gross capitalized cost is the vehicle’s sales price, also known as the market value. It is basically a fancy term for the vehicle price plus additional fees, balances, and taxes
• Money factor: The money factor represents the price you’ll pay, in interest, to lease a vehicle.
• Monthly payments: As with a standard auto loan, the monthly payment amount is the total amount you’ll pay the lessor each month to keep the lease agreement in good standing.
• Residual value: This is an estimate of the vehicle’s value after the lease. It is set at the start of the agreement and used to calculate your base monthly payment.

2. Research deals

Relying on a Google search isn’t enough to identify the best lease offers. 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. At this point, it is also smart to determine expected costs with the help of an auto lease calculator.

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

You’ll likely have the option to purchase the vehicle at the end of the lease. If you choose this route, 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 David Undercoffler, editor in chief of Autolist.

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 percent negotiable,” says Nathan MacAlpine, 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. Keep in mind that if you pay for additional miles up front but don’t use them you will not get your money back.

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.

Or you can inquire about a single-pay lease to possibly lower the money factor. You’d pay the entire down payment upfront instead of spreading it out over the lease term in exchange for a lower money factor, which means reduced borrowing costs.

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.

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 to avoid any car leasing mistakes. 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.