Did I Get A Good Lease Deal?
“Did I Get a Good Lease Deal?” The thought might have crossed your mind. It can be so difficult because some car dealerships are like “black holes.” You start to negotiate and continue slowly down their vortex until you can’t see straight.
You leave dazed and confused. I decided to address this topic to help people who lease vehicles. A car lease is a very important contract and you should follow these tips to save money.
Affordable Car Lease Characteristics
How does a good car lease compare to a bad car lease? How would mileage, wear-and-tear and early repayment penalties impact your bottom line? What should I reveal to the dealer and what should I keep private?
These questions and more might run through your mind as you negotiate your lease deal. You want a great car, but you want the lease to be affordable too.
When you lease, you can drive more car for less money.
There are many characteristics of a good car lease. It must fit your budget, while accomplishing your transportation needs. Here are some other factors, you need to consider when signing a car lease:
- “High Residual Value”
- Interest Rate
- Wear & Tear
Remember that once you sign on the dotted line, you will be on the hook financially for a couple of years. So, be careful and get a great car lease that fits your needs.
According to Bankrate.com, if you “put down $4,000 on a 36-month lease, you should understand your real cost per month is about $111 more than your monthly payment ($4,000 divided by 36 months).” Divide total cost by the lease term to get your monthly payment. This can help you balance “Total Cost” and “Monthly Payments.”
“High Residual Value”
The financial institutions base your car lease terms and conditions partially on the “Residual Vehicle Value.” To the lay man, this basically means depreciation. The “Residual Vehicle Value” is how much your car, truck or SUV will be worth at the end of the lease.
Why does “Residual Value” matter?
Basically, your monthly payment will be based on how fast your car depreciates. If you choose a make and model that retains its value better, then your monthly payment will be lower. Therefore, look for a “High Residual Value” to save money.
Low Interest Rate
Look up the “Current Auto Loan Interest Rates” on a website like Bankrate.com. This provides a basis point for your interest rate negotiation.
Do you know how much you drive every day? What would happen if you had an emergency? Are you simply going to “park the car” rather than exceed the mileage limit?
Typically, your mileage will be capped at somewhere between 10,000 and 15,000 miles per year. Of course, if you are a salesman or delivery man, you might exceed this number. Exceeding the mileage could cost you between 10 to 15 cents per mile.
Before your lease expires, the dealer will make an inspection looking for interior and exterior “wear and tear.” He will look for obvious nicks, spills and dents, which will lower its retail value; you probably shouldn’t smoke in your car. You might want to get it detailed to save yourself some money.
Related: How to Get Approved For a Car Lease
First Negotiate Purchase Price
Don’t tell the dealer whether you are going to purchase or lease, initially. This gives you leverage. Negotiate the automobile purchase price first.
Dealer might ask “What do you want your monthly payment to be?”
If you tell the dealer that you will lease, right away, he might inflate the price. He will assume you won’t mind higher payments because the contract will be short-term. Get the purchase price in writing before you go to the next step.
Total Price versus Monthly Payment
You might want to concentrate on the “Total Price” for the overall lease. Some salesmen will try to emphasize the monthly payment. A true assessment of affordability will be based on the total cost for your automobile lease.
You might be able to get two years free maintenance. The third year is when many cars start to break down, so be prepared.
Car Leasing Example
We will look at how “Residual Vehicle Value” will impact the monthly payments for two different models. You can use a car lease calculator formula to help you figure out the numbers:
Model A is a $40,000 SUV lease for three years with a “Residual Vehicle Value” of 50%. When the lease ends, the model will still be worth $20,000. If you take the amount depreciated ($40,000 – $20,000 = $20,000), then divide it by 36 months (the lease length), you will arrive at the basis for your monthly payment of $556. There are also additional charges, sales taxes and interest, which must be added thereto.
Model B is a $40,000 SUV lease for three years also, but this model retains its value more readily because its “Residual Vehicle Value” is 60%. At the end of the lease, it will be worth $24,000, having lost $16,000 during the lease term. If we divide the $16,000 by 36 months, we get a basis for your monthly payment of $444. See, how a higher Residual Vehicle Value can lead to a lower monthly payment?
Did I Get a Good Lease Deal?
When you follow the aforementioned car leasing tips, you can finally answer the all-important question of “Did I Get a Good Lease Deal?” You can compare your automobile, truck or SUV lease with others; you understand how the industry calculates leases. Simply follow these steps:
- Calculate Residual Vehicle Value
- Shop for Best Interest Rates
- Avoid Mileage, Wear or Pre-Payment Penalties