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Leasing a Car? Know What You Can and Can’t Negotiate.

Michael Ringler


Leasing a vehicle might seem simple—and cut and dried. You pay a set amount at signing and set monthly payments over the term of the lease. No haggling like when you buy a car, right? Well, you might be surprised to find out that there are several places in a car lease where there is room for negotiation.

But before you start wheeling and dealing, let’s be clear. If there’s a special deal on a car you want with the equipment you want, an appropriate mileage limit, and either no lease acquisition cost or a manageable one, commit. You’ve won the lease equivalent of the lottery.

If not, start your negotiation engine. There are several aspects of a lease agreement that can be negotiated:

  • Capitalized (or “cap”) cost: Just like when you buy a car, you want to know the price of the vehicle. By doing some research about general and local market conditions, you can determine the current average sales price of the vehicle you’ve picked out. That’s about what you should be paying—or in the case of leasing, that your lease payments should be based on. A lease payment is the sum of three components: depreciation, which is the difference between the value of the vehicle at the time of leasing and at the end of the lease; interest; and sales tax.

    Once you determine a fair price for the vehicle, subtract the amount you’re going to be allowed on your trade-in. You might come prepared for that negotiation by knowing a fair market value for your trade-in. Your “cap cost reduction” will either lower your monthly payments or be applied to the amount you have to pay at signing.

  • Interest Rates: Most lease deals are available only to consumers with good credit. After all, the dealer, or whoever is financing the vehicle, is taking a leap of faith that you’ll actually make the monthly payments as well as take reasonably good care of the vehicle. Knowing the going interest rate for vehicles being financed by your local lending institutions will help you negotiate your rate.

    But that’s not all you need to know. In vehicle leasing language, the interest rate is expressed as the “money factor” (also “lease factor”). For example, you might be quoted a money factor of .00300, or by sliding the decimal point three spaces to the right, as 3.00. Anyway, both would seem to indicate an interest rate of 3 percent, but converting money factor to an annual interest percentage rate (APR) involves multiplying the decimal by 2400. So what might look like a 3 percent interest rate is actually 7.2 percent. Dealers aren’t required to disclose the money factor on the lease worksheet, so be sure to ask.

    Negotiate your rate to a level appropriate to current market interest rates. During the negotiation process, be sure the calculations are always using the same lease term—36 months, for example—so you are comparing apples to apples. Compare interest rates and then examine the commensurate monthly payments.

  • Buyout Price: If you think you might buy the vehicle when your lease is up, now is the time to negotiate the price. You generally won’t have that opportunity at the end of the lease. Note that the lease buyout price is not the same as the residual value, which is set by formula and typically can’t be negotiated.
  • Mileage Cap and Charges: You want to have a good idea of how many miles you’re likely to drive in a year before leasing. If you know that you are going to be near the contract mileage limit, you can negotiate for a higher cap or a reduction in the excess mileage charge. At any rate, make certain the mileage limit is a number you can comfortably live within even if your life changes. Give yourself some leeway without grossly overestimating the number of miles you will drive.
  • Gap insurance: While many leasing companies require you to carry gap insurance that covers the value of the car should it be stolen or totaled, you don’t have to buy it from the dealer. Before you buy, check with your insurance company, bank, or credit union for a better deal. It isn’t exactly negotiable, but you do have some control over what you buy.

There are also nonnegotiable costs you shouldn’t waste your time haggling over:

  • Residual Value: The residual value of your leased vehicle is set by an independent organization, such as the Auto Lease Guide (ALG). Manufacturers and dealers generally stick with the experts’ opinions, so don’t expect to negotiate a lower residual.
  • Acquisition Fee: The acquisition fee is an administrative charge tacked on at lease signing to cover the costs of preparing the lease. You’ll also have to pay registration costs and taxes at signing. Dealers tend to stand firm on their acquisition fees. You might be able to get your dealer to roll it into your monthly payments so you don’t have to pay it up front.
  • Disposition Fee and Purchase Option Fees: The disposition fee, which is charged at lease end, is for refurbishing and preparing the car for the used car market. You’ll also be liable for any excess mileage or wear-and-tear. The purchase option fee is an administrative fee tacked on to the buy-out price when you buy the car at the end of the lease. Dealers don’t typically negotiate these fees at the outset of the lease. You might get them reduced or even waived at the end of the lease term, particularly if you’re going to lease a new model from the dealer.
  • Registration and Taxes: Because these are regulatory fees, the dealer can’t alter them. You’ll typically pay them at signing. For a lease, you don’t pay sales tax on the price of the vehicle, you pay it based on your monthly payments.

Leasing can be complicated. The terminology itself can make it difficult to understand what and how much you are paying for. Your best weapons toward negotiating your best deal are knowing as much about the process before you visit the dealer and a good credit rating.


The information included in this document is for general, informational purposes only. It does not contain any investment advice and does not address any individual facts and circumstances. As such, it cannot be relied on as providing any investment advice. If you would like investment advice regarding your specific facts and circumstances, please contact a qualified financial advisor.

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