What can you negotiate in a car lease?
Approaching car leasing negotiations can be daunting. I want to share some information on what can you control when negotiating a car lease and what aspects are out of your hands.
What are the key components of a car lease?
There are 4 main components of a lease:
Sale price of the car - ultimately what price is the dealer giving you
Residual value of the car - this is set by the manufacturer and tells you what your car will be worth at the end of your lease
Money Factor - this is the interest rate you pay on your lease. It is set by the finance company. Typically when you lease you will have more than 1 option for who to finance through
Length & mileage - most leases are 36 months, but you will see 24, 39, and 42 month leases as well. Mileage is typically tiered as 10k, 12.5k and 15k miles per year.
What can you negotiate when getting a lease?
Much like buying a new car, your main negotiating lever is the price of the car. You cannot control the Money Factor or the Residual Value. Those are set by the car & finance company. In a lease, you can also change your term and mileage per year which will have an impact on your payment. Typically, the more miles per year you get the higher the lease price (because the residual value goes down).
How do I approach negotiating the price of the car?
The most important part is doing your research. You want to know any available incentives on the car from the manufacturer since that will be an automatic discount before starting your negotiation. You also want to make sure you know how many cars are available - you will always have an easier time negotiating with a dealer that has 50 cars in stock vs 5. I also recommend starting out your negotiation via email. This will allow you to speak to multiple dealers in your area at once without spending the time of coming in. You should only go into the dealership once you have a deal worked out via email.
When leasing, it also helps to be up front with the dealer about the structure you want. In your first outreach, let them know how many miles a year you want, if you want to roll your taxes into the lease price, and if you want to put any money down. Typically, you should not put any money outside of your first months payment down as you risk losing it if your car is totaled. In my first outreach I also like to give the dealer a target monthly price to set expectations. Usually their response will be above my target, but it gives you a sense of how much you need to negotiate. It also helps eliminate dealers that are not willing to negotiate.
Typically you want to target your lease payment to be 1% of MSRP of the car. So if you are getting a $50,000 car, your lease payment should be around $500. This rule is not perfect, especially for more specialty cars that depreciate faster or are in higher demand, but it is a good general target.
If you want personal lease deal advice feel free to fill out my contact form