Autumn is a great time to sign on for a new car lease — assuming you’re not targeting the year’s hottest models. The 2001 cars are fresh from the factories and couldn’t be newer. And with most leasing, the newer the model the better your chance of landing a low monthly payment.
It all has to do with a car’s residual value, the amount the car is expected to be worth at the end of the lease.
In a lease, you pay the difference between a car’s current value, its “capitalized cost,” and its “residual value,” plus a monthly financing fee.
So the bigger the residual value, the better. A car’s residual value is at its peak when it arrives on a dealer’s lot. It declines as the model year progresses.
Early leasers get the best deals
“The first two months are ideal,” says Mark Eskeldson, an auto expert and author of
CarInfo.com, a consumer information and advocacy Web site. “That’s when the published residual will be higher.”
Of course, for the best-selling models, the capitalized cost is also at its peak. Dealers don’t have to mark down models that are selling too fast to keep in stock.
Automotive Lease Guide has been forecasting auto residual values for more than 35 years. It announced its Residual Value Award Winners for 2000 models in June. These cars, trucks and SUVs are expected to retain the highest percentage of their original price.
The Honda Odyssey, Acura TL, Volkswagen Beetle, Mercedes CLK and Chevrolet Suburban have been tops in their categories for the past two years. Other winners include the Volkswagen Passat, Toyota Tundra and BMW X5. Lease shoppers checking out 2001 models should take note.
“These are cars that are probably going to have lower monthly payments for their classes because they have higher residual values,” says John Blair, president of Automotive Lease Guide.
“They are probably some of the hottest sellers in their segments.”
Remember the other parts of the deal
Choosing a car with a higher residual value is no guarantee you’ll get a good leasing deal.
“There are a whole bunch of pieces to the leasing puzzle and they’re all tied together,” Eskeldson says.
Focusing on one factor and neglecting the others can mean trouble.
This worksheet explains how all the pieces of a lease fit together and will help you crunch numbers.
“A consumer needs to make sure they don’t get hung up on one factor of leasing,” says Robert Ellis, director of
LeaseWise, which is part of the Center for the Study of Services, a nonprofit consumer research group in Washington, D.C.
“A great residual value and a terrible money factor doesn’t get you anywhere.”
A money factor is similar to the interest rate paid on a conventional loan, but is expressed in a fraction. To convert the money factor to a recognizable interest rate, multiply it by 24. The money factor is negotiable, and consumers who lease a new car should look for a money factor close to the current interest rate charged for new-car loans.
Negotiate to lower your costs
The capitalized cost, which is lease-speak for the car’s current value, is also negotiable. Get this down as low as you can.
A sky-high capitalized cost can offset any savings you get from a high residual value. And that’s one reason fall shoppers may have a tough time scoring a super-low leasing deal on an ultra-popular car or sports utility vehicle.
“With a hot model, you’ll have to pay near sticker price,” Ellis says.
“The capitalized cost will also be high because there’s no reason for dealers to discount the price of that vehicle because they can lease or sell all that they get.”
Hottest wheels cost more
The best leasing deals this fall may be found on less popular models. Cars being clobbered in sales by competitors may come with rebates.
Folks with their hearts set on leasing an ultra-hot 2001 model may want to wait awhile. Being patient could save you some cash.
“Is it a vehicle in four or five months the kind of ‘I’ve-got-to-have-it-first-because-it’s-the-best-out-there’ wave will be over?” Ellis asks. “Do you have to have it right now or can you wait and see if the prices will come down?”
Don’t forget to shop around for your lease. Check out what’s available from different dealers, banks and leasing companies. Make them earn your business.
“It’s bar none the most important thing that consumers can do,” Ellis says. “That competition is key.”