When you finally decide to get a new car, your first instinct may be to buy. But have you considered that leasing might be a better option?
There are a lot of benefits to buying a car, but for many people, the perks of leasing a car will far outweigh the benefits of buying a car. So why is it sometimes better to lease a car than to buy?
If You Lease a Car, You Can Negotiate The Price
There is a misconception when it comes to leasing that you do not have as much negotiating power. But this could not be farther from the truth. When you lease a car, you actually have much more to negotiate on than when you buy a car. So what exactly can you negotiate on your car lease?
The Capitalized Cost
The capitalized cost (or “cap Cost”) is the agreed upon value of the car. In other words, it is the sticker price of the car. Your car lease payments will all be based off of this price, so it’s important to negotiate this number as low as you can. Be sure to go to Kelley Blue Book and Edmunds to get a good sense of what a fair value is for your car.
The Money Factor
The money factor is similar to the interest on a loan. It is essentially the cost of leasing the car. Money factors are expressed as very small numbers (such as .003), but you can multiply this number by 2400 to get an approximate percentage that makes sense (.003 x 2400 = 7.2%).
Your ability to negotiate this will vary from dealer to dealer. Your money factor is determined mostly by your credit score, so the factor that you are offered will depend on which bracket your credit score is in. Some dealers will claim this is non-negotiable, while some dealers may budge. It is worthwhile to try to negotiate this rate as low as possible.
The Down Payment
You can usually negotiate the down payment required on your lease. And if your credit score is good enough, you may be able to put zero money down.
When you buy a car, you want to put down as much money as you can, as you will not have to pay interest on that money and it will help ensure that your loan doesn’t become underwater. But leasing is different. If you put a down payment on a car lease and something happens to it, that money is simply gone. Additionally, one of the main perks of leasing is the low upfront costs. If you have a large down payment, this defeats this perk. You should always try to negotiate this and roll over any down payment requirements into monthly payments.
The Mileage Allowance
Depending on how much you drive, the mileage allowance may be a huge hindrance for you. All leased cars have annual mileage allowances, typically 10,000 or 12,000 miles per year. If you go over your allotted mileage, you could face a fee for every mile that exceeds your limit. So you want to be sure to negotiate this term in your car lease agreement.
The Lease Term
Consider how long you want to have your leased car. This will vary from person to person – some people love getting a new car as soon as they are able to, while others like to stick with a car they are comfortable with for a longer period of time. You should be sure however that you never extend your lease beyond your warranty period. If something breaks while you are leasing the car but it is not covered under warranty, it will be your responsibility to fix it. And that can be a big hit in the wallet.
How To Negotiate a Better Lease of a Car Online
Leasing a car online may provide you the best chance to get a good deal. Instead of being limited to the dealerships that are nearest to you, you have a much larger market to look through. So here are our top tips to negotiate and lease a car online.
- See what you can afford. Go through your budget and see how much you can comfortably afford to spend every month on a car lease. (If you need some help with your budget, we have a handy guide to budgeting you can use) When thinking through your budget, be sure to not overextend yourself. Keep in mind that emergencies happen and you don’t want to pick a car lease that just fits into your budget. Always give yourself some breathing room.
- Research cars. Take a look online and see what type of car suits your needs the best. Would you prefer a car or an SUV? What color do you prefer? What makes and models have the best reviews? Websites like Kelley Blue Book and Consumer Reports can help you to narrow down your choices and give you a good idea of what a fair capitalized cost will be.
- Search for dealers. There are tons of dealers and online sellers for you to choose from. Do your research to see who has the best customer satisfaction ratings and who has the best car lease deals on the car you are looking to lease.
- Do a buy vs. lease comparison. Make sure that leasing is the right option for you. It may be helpful to do all of the math and determine what your monthly payments would be for both. Leasing will almost definitely result in lower monthly payments, but make sure you are comfortable with the pros and cons of leasing before agreeing to anything.
- Select your dealer and apply. Once you know what you are looking for and who has the best deals, select the dealer you want to move forward with. In order to apply for your lease, you will most likely need the following information:
- A valid photo ID
- Your insurance information
- Proof of income (normally your last two pay stubs will suffice)
- Proof of residency, like a current utility bill
If this will be a trade-in, you will also need any trade documents, such as your current car’s title, registration, and/or loan release. Compile all of your documents and scan them onto your computer. Complete all of your applications and wait for your offers to come in.
- Negotiate. When your offers come in, you can start negotiating. You can negotiate all of the same points that you would negotiate in person. Be sure you are getting a fair capitalized cost and market factor, and make sure the down payment, lease term, and mileage allowance are all reasonable. Remember: a larger online market means you have more options, so don’t rush into any deals and don’t settle.
- Sign and arrange transport. After you have decided on which loan is best for you, you can sign on the dotted line and start arranging for transportation. The dealer or service you are leasing from will probably be able to arrange this for you, but it doesn’t hurt to look around to see if you can find a better car lease deal.
How Do You Get The Best Car Lease Deals?
In order to find the best car lease deals, you will need to do some research. There are tons of websites that specialize in online leases, like CarsDirect and TrueCar. But be sure you know what is a good value for the car lease you are interested in by using sites such as Kelley Blue Book and Edmunds to look up values.
If you are already leasing a car and are interested in purchasing it, you can find great lease purchase deals online as well. Purchasing your lease may be a good option if any of the following apply to you:
- You love your car and can’t bear to part with it
- You have gone over your mileage allowance and will be responsible for heavy fees
- You have a lot of wear and tear on your car and will be responsible for heavy fees
- Your car is worth more than the buyout price
- You have a party that is interested in buying your car from you
Whatever your reason is, lease buyouts can be a great way to save money and stay in the car you love. At Auto Approve, lease buyouts happen to be one of our specialties. We can help you secure financing and keep you in the car you love!
Sometimes it makes more sense to lease a car rather than buy one, and sometimes it makes sense to purchase your car when the lease is over.
There’s a lot to think about when it comes to leasing a car. Be sure to weigh your options and decide what works best for you. No matter what you decide, be sure to do your research and negotiate as much as possible.
If a lease purchase makes sense for you, you can get started with Auto Approve today!