Everything You Want to Know about Negotiating a Lease

[PowrRam]

I didn't know where to put this post so I chose the 5th generation general forum. Over the years I've had a couple of friends ask me about leasing so a couple years ago I did a short write up. I got more questions recently so I expanded the write up. [Warning: somewhat lengthy. I had to break it up into four parts to meet the number of characters posting limit.]
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(Almost) Everything You Want to Know about Negotiating a Vehicle Lease


I lease vehicles, half ton pickups mostly, for business reasons. Over the years I've leased a Dodge Dakota, seven F150 XLT's, and two Ram 1500's. I've also done three leases for personal reasons for my wife's vehicles. Over these years I've learned a few lessons in how to negotiate leases. The problem is the dealerships negotiate prices on vehicles every day. We consumers are lucky if we do it once every five years. In my case, once every three years. Here's some tips I've gleaned over the years. My pain is your gain. The first couple of tips apply to either leasing or buying. After that I will get into specific negotiating tactics for leasing.


Find Your Vehicle

1. Decide ahead of time what vehicle you want and get a general idea of what equipment you want on it. If you are currently leasing you should start this process at least a month before lease end, six weeks would be better. You can do this research with an exploratory visit to a couple of dealerships and see the vehicles firsthand, maybe drive a couple vehicles you like, just be ready to get the sales pitch. In order to deflect any talk about pricing, simply say something like, "I'm real early in the discovery phase, just seeing what is out there and how much it costs. I don't even know if I want to buy or lease just yet."

A better, more efficient way to accomplish the selection process is to go the vehicle's website (www.chevrolet.com, www.dodge.com, etc.) and use their vehicle builder tool, i.e. "Build and Price Your Vehicle". You will pick out an engine, drivetrain, exterior and interior color, optional equipment and then they will show you a retail price. They will also have a listing of dealers near you with similar vehicles. This is a very useful tool as we shall see.

2. Once you've figured out the vehicle you want, find the current brochure for that vehicle online and download the brochure to your computer or phone. This is usually a .pdf file. (Computer is better because the larger screen is an advantage.) Near the back of these brochures is a chart, several pages long, showing the various equipment offerings at different trim levels. You will see items that come standard with certain trim levels, items that are optional at certain trim levels, and items that simply are not available on some trim levels. Find out what comes standard on the vehicle and what is optional. For example, for Ram trucks I looked at Big Horn's and Laramie's. I was astonished to find out that remote start, Parksense park assist, and LED bed lighting was standard on Big Horn but was optional equipment on the more expensive Laramie.

3. Now let's find some vehicles with the equipment you want that are near you. You can either visit the websites of local dealers and use their new vehicle search tool (fast and easy) or you can use the online dealer inventory stock search tool on the manufacturer's website. This will find you a lot more vehicles but it might find too many. (This is the tool I mentioned that is shown after you build a vehicle using the vehicle builder tool.) The goal is to find a couple of vehicles that meet your needs and then examine and download the window stickers.

Getting the window sticker is huge because it lists the equipment on the vehicle, the MSRP, and the VIN#. For example, my most recent lease was a 2018 Ram Big Horn. I looked at about fifteen window stickers before I narrowed it down to two possible vehicles. One was at a dealer about 100 miles away. By getting the VIN# off the window sticker you can be sure when you talk to dealers you are talking about the exact vehicle and not simply, "the black one with leather and the Alpine sound system."

Get to know the names of the optional equipment packages. For example, I knew I wanted a Big Horn with a 3.6L V6, Big Horn Package 22S, Premium cloth bucket seats with full floor console, heated seats and wheel group. Actually, I wanted leather bucket seats and the Alpine 9 speaker system, but after studying the brochure I downloaded I saw that they were not factory options on Big Horn. I could get these things on a Laramie, but I quickly learned a Laramie was out of my budget range.

Having a couple of vehicles selected and having their window stickers in hand is a very powerful negotiating tool, as you will see. Being able to sling about the names and numbers of various packages shows the dealer you've done your homework and are serious.


Negotiating the Deal

Leases are typically presented as:

A down payment, for example, "$2,499 down" (also known as the capitalized cost reduction)
A lease length, ex. 36 months
A mileage allowance, ex. 12,000 miles per year

These are the basic parameters. However, there is typically more than just $2,499 down. In addition to the capitalized cost reduction, the financing company typically wants you to make the first month's payment, the sales tax on the portion of the vehicle's price you are leasing, and the license plate fees.

They also try to throw in a lease origination fee, a paperwork fee, a disposition fee, a security deposit, plus they try to upsell you on excessive wear and tear insurance, paint sealant, maintenance plans (oil changes and tire rotations).


Before we start, some definitions:

MSRP, manufacturers suggested retail price. Found on the window sticker.

Incentives: Goodies the manufacturer offers to you to sweeten the deal. There are all sorts of incentives, small business owner incentive, military service incentives, national association of realtors incentive, returning lessee incentive, new lessee incentive, left-handed nose-picking stepchild incentive <jk>, etc. These are typically $500 each or thereabouts.

Rebates: Money the dealer offers to lower the capital cost of the vehicle. Usually in the thousands of dollars.

Residual Value: What the vehicle will be worth at the end of the lease. This is set by the manufacturer and is expressed as a percentage of the MSRP. The greater the residual value, the lower your payments will be.

Capitalized Cost = MSRP minus incentives minus rebates minus down payment

Monthly Payment = (Capitalized Cost - Residual Value) / number of months
(there is also a finance charge involved but I'm not including it for the sake of simplicity.)


Example:

MSRP = $50,000
Rebates = $8,000
Incentives (totaled) = $2,000
Residual Value = $24,000
36 months


So, roughly speaking, the monthly payment would be:

[(50,000 - (8,000+2,000)) - 24,000] / 36

((50,000 - 10,000) - 24,000) / 36

= 16,000 / 36

= $444.44 per month


One of the most important things you can have going for you is a sterling credit rating. An excellent credit rating will allow you to get many of these extra fees to go away and get you the very best pricing and terms.

Another thing to have is a couple of window stickers with the vehicle and equipment you like because YOU ARE GOING TO VISIT AT LEAST TWO DEALERS. You're going to go through the process of getting pricing on two similar vehicles from two different dealers. If you have done your homework, that is, have a solid idea of the vehicle you want, including VIN#'s, the first pass at obtaining pricing can be done entirely over the phone.

Be aware the dealer is always going to want to get you into their dealership where the shiny new vehicles beckon you. They want to get you behind the wheel and driving a vehicle because you're now visualizing yourself having that vehicle. It's powerful stuff. Again, you can say, "I'm just starting my search and want a ballpark figure. Maybe if the price is in my range I'll come in and drive one." Don't be discouraged if the pricing you get over the phone seems high--it will be. The dealer is going to shoot you a high price at first.

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[PowrRam]

(Almost) Everything You Want to Know about Negotiating a Vehicle Lease
continued...


OK, here we go... Here's the fun part, at least for me.


If you've got excellent credit you'll want to let them know. If you don't have the best credit, don't mention it. At some point they will have you fill out a credit app and they will find out your rating. Don't fill out a credit app as the first thing you do. Applying for credit too many times can actually lower your credit score and potentially create opportunities for identity theft. If they ask you to fill out a credit app before they want to talk price tell them you don't like to pull credit reports because it's bad for your credit rating. You might be able to get a credit score from your credit card company. A lot of credit card companies have a section on their website under your account information where they show a credit score. You could take a screen shot of this (be sure to block any sensitive information) and show it to the dealer. At least it will give them an idea of your good credit without you needing to fill out a credit app.


If you are currently leasing, let them know. They will be happy to know you've already crossed the mental hurdle of leasing and will figure you to be softened up to the process. Also, they will be extremely interested in hearing about your current leased vehicle because they might want to buy it and resell it for a profit. (They will likely hide their interest, though.)


1. Never, ever put any money down. That is, don't pay down the capitalized cost of the vehicle. Why should you pay $2,400 down and then pay $300 a month for 24 months when you can put $0 down and then pay $400 month for 24 months? Keep that $2,400. Spread it out over the length of the lease. By the end of the lease the overall amount of money in the deal is the same but you didn't have to fork over $2,400 up front.


Another reason is a long shot, but worth considering. If you put money down and then wreck the vehicle, totaling it out for insurance purposes, you've just lost all that money you used as a down payment.

Now, you may have a used vehicle you could trade in on the lease to lower the capitalized cost and thus lower your monthly payment. Usually the dealer will not give you a fair price on your trade in, but sometimes it's worth it to avoid the hassle of selling your vehicle by yourself.


Another situation is you might already be leasing and you have a vehicle to turn in. This can be a very powerful negotiating tool, but the ultimate value is a bit hard to nail down in absolute numbers. More on this later...

2. Never, never do a lease longer than 36 months. I say this because most vehicles bumper-to-bumper warranty run out after 36 months. If you do a 39 month or 42 month lease you will be liable for repairs if anything happens to the vehicle past 36 months. Dealers like to do 39 and 42 month leases because it lowers your monthly payment.


3. Don't buy more miles than you need. Leases are typically 12,000 miles or 10,000 miles per year. Ford does 10,500 mile per year leases. You don't want to do a 36 month, 36,000 mile lease and then discovering at lease end that you only used 28,000 miles. (Although there is a hidden benefit, more on this later...)

4. Use the deals they advertise in the paper and online as a rough starting point. Never go in there and do a deal with the published terms. Never. Use the down payment amount they are asking for in the ads and divide it out into the lease term to get the $0 out of pocket amount. (Following the advice in #1, above.) Example: Ad says 36 month lease, $2,999 down, $329/month. Well, that's $2,999/36 or $83.30 more per month with no down payment. So, $412.30 per month. Think of this as the number that is higher than any number you will ever pay. I got to the point where I had memorized these amounts. Oh, $2,499 down, that's $70 more a month with zero down. $1,999 down--that's $55 more per month with zero down. Etc.


5. Ask about incentives and rebates. They can and do reduce your capitalized cost of leasing. Capitalized cost is essentially the price of the vehicle that you and the dealer agree to. Typically, though, you will be agreeing to a monthly payment amount and the dealer will fiddle with the upfront money to adjust the capital cost of the vehicle in order to get you to the desired monthly payment. Incentives and rebates can change at the start of the month. You can use the incentive changeover time to your advantage (as described in #8, below.)


6. If you are currently leasing ask them to make the final payment(s) on your current lease. For my first Ram lease I didn't think they would do this because I was leasing a Ford, but they did it (and paid me directly, simply wrote me a check). In the biz this is called "pull ahead programs", and typically they will go a maximum of 3 payments to "pull you ahead" to their vehicle.

7. Always frame the deal in dollars per month. "But I don't really want the spray-in bedliner or the 9 speaker premium sound system. That's $775 on the window sticker which translates to $21.52 a month more. I suppose I could live with that truck if I got that equipment thrown into the deal at my (lower) price."

8. Time your shopping so you will be ready to sign lease papers at the very end of the month. Two reasons--the dealer wants to book a deal in the current month, they have incentives and bonus programs so they might bend a bit more on price, but more importantly if you wait until the end you can say, "I don't know. The lease programs might change tomorrow. If they change and get better I'd want to do a deal tomorrow. If they change and get worse I should have done the deal today. How about getting the papers drawn up but leaving the date blank. I'll come in tomorrow on the 1st of the month and decide if I want this month's deal or next month's deal. After the new programs come out we can fill in the date that works best for me." I've done this on several of my leases. They might want you to put something down to assure you will come in tomorrow. "OK, here's a check for $25. When I come in tomorrow and fill in the desired date on the paperwork we'll rip up this check. If I don't come in tomorrow and do the deal you can cash the check."

9. Make sure you ask about all rebates and incentives on the vehicle you are looking at. These rebates and incentives will be deducted from the capitalized cost of the vehicle, thus lowering your monthly payment.

10. Do not pay a security deposit. Typically $300 for the life of the lease. Unless you have young kids and/or are rough on your vehicle that's throwing money away. Again, convert this amount into a monthly amount. $300/36 months is $8.33/month off the monthly payment.

11. Do not agree to pay a lease termination fee (sometimes called a disposition fee). This is usually imposed by the bank that is financing the lease, not by the dealer. I don't mean the fee you would pay if you terminated the lease early, I mean the fee they sneak into the contract where they get $300 when you turn in the vehicle and don't lease through that bank again.

12. Stick to your guns. If you say, "My budget is $375 a month", stick with it. Don't let new car fever get a hold of you. Resist that devil. Remember #5 but in reverse--Salesman says he can do the deal at $389/month, that's only $14 more." No, actually it's $504 more (over 36 months.)


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[PowrRam]

(Almost) Everything You Want to Know about Negotiating a Vehicle Lease
continued...


OK, now we get down to the nitty-gritty.


The dealer has his advertised price, let's say it's 36 month lease, $2,999 down, $329/month. Since you never, ever make a down payment, immediately back that $2,999 out of there and add it to the monthly amount. $2,999/36 months = $83.30 a month. So their advertised deal is really $412.30 per month, nothing down.

Negotiating 101--you always want the other guy to name a number first. You might say something like, "I don't want to pay anything out of pocket. Nothing at all. What is the best price you can give me with nothing down?" Then shut your pie hole until they make an offer. Don't say a word.

They'll come back with something like $410 a month, maybe $399 a month, which you will decline. Then they will ask you what number you had in mind. General guideline--take off at least 20% of their number and present it to them. You want it to be really low. Plant your flag.

For this deal I would probably have my opening offer be something like $330 a month, nothing down. They might laugh, they might say, "That's so low I'm not even going to bring it to my manager."

Fine. Tell them you've got another vehicle at this other dealer you want to look at. This is the vehicle on the other window sticker you have in your pocket. Then get up and go over there. Seriously. You've got to establish you would walk away from their deal and go look for a better deal. And why not? This other dealer has the exact same vehicle. You know this because the window stickers are identical (or nearly identical.) Go see how much wheeling and dealing this other dealer will do for you. I can't stress this enough.

The last lease I did started out at $420 a month, nothing down, nothing out of pocket. In the back of my mind I'm thinking I want to get it for less than I'm paying on my current lease, which was $365. So I said, "I'm just starting the discovery process. There's a similar vehicle at John Doe's Chrysler/Jeep/Ram, except it's black. I want to go see it and see what they will do on price. I owe it to myself. Surely you wouldn't do the first and only deal presented to you, would you?" They have no answer for that. Then get up and leave!

They might call you on it, doubting you have another vehicle in mind. Show them. Pull out the window sticker and rattle off the VIN#. (I download the .pdf of the window stickers to my PC, then transfer them to my phone. I make printouts and carry them with me to the dealer. Or else print them out and take photos of the window stickers with my phone. However, pulling out a physical piece of paper is much more dramatic, and seems really tangible to salespeople.)

One thing you can count on with car salespeople--they will be wearing out your cell phone with follow up calls and texts in the next couple of days. Your objective is always to get at least two dealers vying for your business. You won't believe how fast the price comes down. Or they might say they've got another vehicle with slightly different equipment on it. You must act somewhat disinterested, somewhat detached. It's hard to do, but you must act nonchalant. "Oh really, is that other vehicle going to be $330 a month?" No, they won't agree to $330 a month, but they might say, "we could go $389 a month. Would you do the deal for $389?" Your answer: "I'm still waiting to hear back from the other dealer", or "I owe it to myself to look at Ford F150's" or "I'm going to wait until next month and see if there are more favorable incentives", or....just...say...anything except outright saying "no".

13. Use one of their sales tactics on them. "Oh yeah, one more thing. I'd do the deal if you throw in some step bars and some free oil changes."

14. Let's say you've made a deal. The day you're about to go in to sign the papers tell them to add on a couple hundred miles on the paperwork. So even though you are getting the vehicle with say, 11 miles on it, have them put down 356 miles or somesuch. It's free miles and a small insurance policy against going over the mileage limit.

15. Learn the jargon.
Residual Value -- The residual value is a percentage of the sticker price. Say a vehicle has a sticker of $40,000 and a buyout price at lease end of $25,000. That is a residual of 62.5%. Monthly programs key in on the residual.

"Pull ahead lease"--when the dealer will pay off the remaining payments on your lease to get you into their vehicle TODAY. These payments can be offered through Ram or through the dealer. Either way, they don't directly affect your monthly payment, but it is definitely money you will keep in your pocket.

"Do a deal" -- salesperson's favorite words.

If You Are Already Leasing...

If you are already leasing a vehicle you might have an ace up your sleeve when it comes to negotiating. Maybe even a couple of aces. It's not particularly evident to you, but the dealer will certainly recognize a potential golden opportunity. They might want to buy your vehicle and resell it on their used car lot, especially if you've got low miles on your vehicle. Even though you don't own your vehicle, you control it's destiny, and therefore you have equity in the situation.

First you have to determine the strength of your position. If your vehicle is below the mileage allowance allotted for your lease, and in good shape, you are in a good spot. Used vehicles with low mileage are always in demand. If it is significantly below mileage, even better. Find your lease papers you signed a couple of years ago. Look for the huge document that is twice as long as regular paper. Locate the section marked, "Purchase Option at End of Lease" (or similar wording) and find out how much it would cost you to buy the vehicle from the bank that is leasing the vehicle. Go to a dealership website for the brand of vehicle you're already leasing and look up your vehicle on their used car lot. Or go to a website like Carsoup.com. Find one with equipment and low mileage similar to yours. Compare their price on that vehicle to the purchase price at end of lease you found on your lease document for your vehicle. Is there a big difference? Probably is.

Example: Let's say your lease is ending in a month. You see that your buyout amount is $20,000. So you can buy the vehicle for $20,000. Research shows that the average price on used car lots for your vehicle with similar mileage and equipment is $24,000. There's the equity that you control that was mentioned previously. Should you buy the vehicle and keep it and drive it? Should you buy the vehicle and sell it yourself? These are good questions that only you can answer. Be aware that if you buy the vehicle you will have to pay state sales tax (if applicable) which could be significant.

The dealership will ask you about your current leased vehicle. Believe me, if they find out you have only 25,000 miles on a three year old car they are going to be extremely interested in obtaining that car for their used car lot! However, they will be very nonchalant about it, trying to play down their interest in it. They will absolutely want to see it, probably want to drive it. I love the reasons they give for this. My last lease they kept asking me to bring in my vehicle so they could do a "end of lease inspection". The reality is the bank that holds your lease sends out a representative to do end of lease inspections, the dealerships don't do it. Since I was doing my pre-negotiating over the phone, I sent them photos. Be sure to send them a photo of your odometer, probably the one photo they are dying to see.

Since you are working with at least two dealerships (and you are, right?), be sure to let them both know you have a vehicle with low miles you will be turning in.

Having a leased vehicle to turn in with low miles on it will unlock a whole lot of benefits for you. The dealership will probably be willing to "pull through" your lease, that is, make the last month or even last two months of payments on your behalf. If there is a disposition fee at the end of the lease, they will probably pay for that too. They'll make your first month's payment and probably pay your sales tax and license plate fees. Oh, and you want some free oil changes and tire rotations? Done.

But the real power in having a low mileage leased vehicle to turn in is that it has hidden equity built in. If a dealership knows they can make $4,000 by buying your leased vehicle and reselling it on their lot, they will be able to lower the monthly payment to you on your new lease. I think they do this by making a down payment on your lease (or in the jargon, a "capitalized cost reduction") and then recoup part of that money when they sell your old vehicle. It's absolutely nothing for a dealership to buy and sell a used vehicle, it's what they do! If they can get a low mileage vehicle and sell it in a couple of days, making $4,000, they are salivating over the prospect! I also wonder if the dealer can buy the vehicle for lower than the buyout price on the lease papers. If so, they make even more money.

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[PowrRam]

(Almost) Everything You Want to Know about Negotiating a Vehicle Lease
continued...

For example, on my last lease I had a Ram 1500 that had 24,000 miles on it. This was a 3 year, 30,000 mile lease. My buyout at end of lease was $23,500. I saw that similar trucks were going for $26,000 to $27,500 on the open market. I briefly considered buying it and reselling it myself, but sales tax in Minnesota would have been $1,700 and then I'd have the hassle of needing to meet with potential buyers, do test drives, rearranging my schedule, going to the DMV to transfer title, etc. The dealer where I leased my new truck bought my old truck from the bank, put it on their lot for $28,995 and sold it for $27,000 in one day. You can check on this yourself by watching for your vehicle to be listed on their website after you turn it in. When I went in to pick up my license plates for my new truck I asked the sales manager at the dealership what they got for my old truck and he told me.

If you go the route of the dealer buying your vehicle they probably won't let you know about it. They will simply say something like, "turn your vehicle in with us, we'll take care of everything." That means they're going to buy your vehicle. The usual way of turning in your vehicle is the bank sends out a third party inspector who inspects your vehicle, takes notes, takes photos, looks for damage, etc. After all, the bank owns the vehicle and they want to make sure it's in good shape. However, if the dealer is going to buy the vehicle from the bank, there's no need to have it inspected. IMPORTANT: If you are turning in your vehicle to the dealer you need to get a document saying they are taking it in. You are no longer responsible for that vehicle and you need paperwork to show that fact.


Other Stuff

One of the things I like to look for is to see how far into the process the salesperson will get until they launch their qualifying question, "So if I can get you a price you're happy with can we do a deal today?" You will always hear this. Always. Your answer should be, "Maybe" or "we'll see". Or they ask the open-ended version of this question, "Where do I have to be on price to get you to drive home that truck today?" Remember, you are NEVER the one to name a price first. Your answer should be, "I can't name a price because I haven't shopped around yet. I can't just lease a truck from the first dealer I visit. I have to shop around. But I WILL be leasing a new vehicle very soon." Your task as a customer is to give them objections to the sale that they can't overcome, but without saying "no" outright. Sales is all about overcoming the customer's objections, usually by lowering the price. "I need to shop around at another dealer" is an iron clad excuse, no way for them to respond to it. Besides you really do need to shop around, gather more data, get more information on pricing.

Another thing I like to have fun with is looking for the "assumption close" question--"Do you want that truck in True Blue Pearl or Maximum Steel Metallic?" Their idea is to get you to look past the sale and visualize the truck in your mind as if it was already yours. If you answer "True Blue Pearl" the salesperson knows he's got you on the line and just needs to set the hook. Your answer should be, "I don't know" or "I don't know, Granite Crystal is also nice." A variation on this is, "Why don't you take it for a test drive, take it home, show the wife and see what she says?" But the ultimate tactic is, "Take it home overnight. Get to know the vehicle." Wow, talk about a visualization cue--it's staying in your garage overnight! You've got a relationship with it! It's practically yours. If you do the overnight thing their goal is to get you to feel guilty for daring to return it.

You do want to get a feel for the deal so you want to leave the dealership with some sort of price quotation. Eventually, you're going to have to name a price. Whatever you do, start out ridiculously low. Say the published price is $2,999 down, $329/month, 36 months, 10,000 miles/year. Immediately remove the $2,999 down payment from the equation by dividing it by 36 months. That's $83.30 more per month with no down payment or $412.30 per month. Now take 20% off of this amount. You will say "I don't want to pay anything down so how about nothing down and $330 a month?" I think you know the drill from here, they'll say, "Let me run that past my boss." Of course they won't go for your offer, they'll come back with a higher number, but --important-- ask them for a quote sheet. Say, "Can I get that number you just quoted me on paper?" They should give you a quote on their letterhead with the date listed. You need this written quote in case you need to show it to a competing dealer. Be very, very suspicious of sales reps that will write a price and terms down on a plain piece of paper. Sometimes they scribble a price on the back of their business card. Not ideal, but better than nothing.

If you do a 36 month lease when you turn in the vehicle you might get charged for excessive wear and tear on tire tread depth (Hemi owners, I'm looking at you!). If you do a 24 month lease you probably won't wear out the tires. But this is just another negotiating point. Tell the dealer when working on your next leased vehicle, "I think I'm going to get nicked for excessive tire wear with my current lease vehicle, can you make an adjustment on price for this?" If you think the tires are excessively worn you want them to reduce the monthly payment on your new lease in case you need to pay the leasing bank an allowance for tire wear. It might be a door ding, or a tear in the seat fabric, but the idea is to get a price reduction to make up for any payment you might need to make for damages when you turn in the vehicle.

I do 36 month leases because 24 months go by fast. Even though you put nothing down you still might need to pay license and taxes up front. So you're potentially looking at $800 to $1000 out of pocket every 24 months. If I have to pay taxes and license up front, I'd rather pay $1,000 out of pocket every 36 months, not every 24 months.

Don't buy more miles that you need. That is, don't get a 12,000 mile lease just because that's what's being advertised. If you know you don't drive 12,000 miles ask for a lower mileage per year lease. This will lower your monthly payment.

The best lease is what they call a "True Zero Down" lease (also sometimes called "sign and drive"). That means dealer pays your vehicle's taxes and license and first month's payment. NOTHING comes out of your pocket. You will see a lot of imports have "true zero down" leases. If you can do true zero down 36 month lease and then in 33 months do a 3 month pull ahead lease with true zero down you could be driving a new vehicle every 33 months for only the negotiated monthly payment amount.

With a 24 month lease you typically have to pay for four oil changes, four tire rotations, and maybe a set of wiper blades. A 36 month lease is five oil changes and tire rotations, maybe a set of wiper blades. And you have no worries about repair costs because you have a full bumper-to-bumper warranty.


I hope this write-up takes some of the mystery out of leasing. If you have any questions, fire away and I’ll try to answer them.

 

[S0CAL]

Thanks for posting this. I don't lease trucks, (did lease my wife's Lexus) but I am sure it will help others here in the forum!

 

[BrianandChrissy]

This is awesome!! Fully subbing this one!!!

Sent from my LGMP450 using Tapatalk

 

[dsps70]

(Almost) Everything You Want to Know about Negotiating a Vehicle Lease
continued...

For example, on my last lease I had a Ram 1500 that had 24,000 miles on it. This was a 3 year, 30,000 mile lease. My buyout at end of lease was $23,500. I saw that similar trucks were going for $26,000 to $27,500 on the open market. I briefly considered buying it and reselling it myself, but sales tax in Minnesota would have been $1,700 and then I'd have the hassle of needing to meet with potential buyers, do test drives, rearranging my schedule, going to the DMV to transfer title, etc. The dealer where I leased my new truck bought my old truck from the bank, put it on their lot for $28,995 and sold it for $27,000 in one day. You can check on this yourself by watching for your vehicle to be listed on their website after you turn it in. When I went in to pick up my license plates for my new truck I asked the sales manager at the dealership what they got for my old truck and he told me.

If you go the route of the dealer buying your vehicle they probably won't let you know about it. They will simply say something like, "turn your vehicle in with us, we'll take care of everything." That means they're going to buy your vehicle. The usual way of turning in your vehicle is the bank sends out a third party inspector who inspects your vehicle, takes notes, takes photos, looks for damage, etc. After all, the bank owns the vehicle and they want to make sure it's in good shape. However, if the dealer is going to buy the vehicle from the bank, there's no need to have it inspected. IMPORTANT: If you are turning in your vehicle to the dealer you need to get a document saying they are taking it in. You are no longer responsible for that vehicle and you need paperwork to show that fact.


Other Stuff

One of the things I like to look for is to see how far into the process the salesperson will get until they launch their qualifying question, "So if I can get you a price you're happy with can we do a deal today?" You will always hear this. Always. Your answer should be, "Maybe" or "we'll see". Or they ask the open-ended version of this question, "Where do I have to be on price to get you to drive home that truck today?" Remember, you are NEVER the one to name a price first. Your answer should be, "I can't name a price because I haven't shopped around yet. I can't just lease a truck from the first dealer I visit. I have to shop around. But I WILL be leasing a new vehicle very soon." Your task as a customer is to give them objections to the sale that they can't overcome, but without saying "no" outright. Sales is all about overcoming the customer's objections, usually by lowering the price. "I need to shop around at another dealer" is an iron clad excuse, no way for them to respond to it. Besides you really do need to shop around, gather more data, get more information on pricing.

Another thing I like to have fun with is looking for the "assumption close" question--"Do you want that truck in True Blue Pearl or Maximum Steel Metallic?" Their idea is to get you to look past the sale and visualize the truck in your mind as if it was already yours. If you answer "True Blue Pearl" the salesperson knows he's got you on the line and just needs to set the hook. Your answer should be, "I don't know" or "I don't know, Granite Crystal is also nice." A variation on this is, "Why don't you take it for a test drive, take it home, show the wife and see what she says?" But the ultimate tactic is, "Take it home overnight. Get to know the vehicle." Wow, talk about a visualization cue--it's staying in your garage overnight! You've got a relationship with it! It's practically yours. If you do the overnight thing their goal is to get you to feel guilty for daring to return it.

You do want to get a feel for the deal so you want to leave the dealership with some sort of price quotation. Eventually, you're going to have to name a price. Whatever you do, start out ridiculously low. Say the published price is $2,999 down, $329/month, 36 months, 10,000 miles/year. Immediately remove the $2,999 down payment from the equation by dividing it by 36 months. That's $83.30 more per month with no down payment or $412.30 per month. Now take 20% off of this amount. You will say "I don't want to pay anything down so how about nothing down and $330 a month?" I think you know the drill from here, they'll say, "Let me run that past my boss." Of course they won't go for your offer, they'll come back with a higher number, but --important-- ask them for a quote sheet. Say, "Can I get that number you just quoted me on paper?" They should give you a quote on their letterhead with the date listed. You need this written quote in case you need to show it to a competing dealer. Be very, very suspicious of sales reps that will write a price and terms down on a plain piece of paper. Sometimes they scribble a price on the back of their business card. Not ideal, but better than nothing.

If you do a 36 month lease when you turn in the vehicle you might get charged for excessive wear and tear on tire tread depth (Hemi owners, I'm looking at you!). If you do a 24 month lease you probably won't wear out the tires. But this is just another negotiating point. Tell the dealer when working on your next leased vehicle, "I think I'm going to get nicked for excessive tire wear with my current lease vehicle, can you make an adjustment on price for this?" If you think the tires are excessively worn you want them to reduce the monthly payment on your new lease in case you need to pay the leasing bank an allowance for tire wear. It might be a door ding, or a tear in the seat fabric, but the idea is to get a price reduction to make up for any payment you might need to make for damages when you turn in the vehicle.

I do 36 month leases because 24 months go by fast. Even though you put nothing down you still might need to pay license and taxes up front. So you're potentially looking at $800 to $1000 out of pocket every 24 months. If I have to pay taxes and license up front, I'd rather pay $1,000 out of pocket every 36 months, not every 24 months.

Don't buy more miles that you need. That is, don't get a 12,000 mile lease just because that's what's being advertised. If you know you don't drive 12,000 miles ask for a lower mileage per year lease. This will lower your monthly payment.

The best lease is what they call a "True Zero Down" lease (also sometimes called "sign and drive"). That means dealer pays your vehicle's taxes and license and first month's payment. NOTHING comes out of your pocket. You will see a lot of imports have "true zero down" leases. If you can do true zero down 36 month lease and then in 33 months do a 3 month pull ahead lease with true zero down you could be driving a new vehicle every 33 months for only the negotiated monthly payment amount.

With a 24 month lease you typically have to pay for four oil changes, four tire rotations, and maybe a set of wiper blades. A 36 month lease is five oil changes and tire rotations, maybe a set of wiper blades. And you have no worries about repair costs because you have a full bumper-to-bumper warranty.


I hope this write-up takes some of the mystery out of leasing. If you have any questions, fire away and I’ll try to answer them.

Tremendously helpful! A few questions. , 1.Do you have any say in what the residual value of the vehicle is, and do you pick the vehicles you want to lease based on the residual value? Since a higher residual value would essentially lower your payments ? 2. How exactly is leasing beneficial for your business (tax-wise I presume) ? I have a small business ( essentially incorporated myself) and contemplate the leasing versus buying question repeatedly. Thanks.


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[PowrRam]

Tremendously helpful! A few questions. , 1.Do you have any say in what the residual value of the vehicle is, and do you pick the vehicles you want to lease based on the residual value? Since a higher residual value would essentially lower your payments ?

The residual value is set by the bank that originates the lease and is not negotiable. I select vehicles based on my needs and my budget. Selecting a vehicle based on the residual value could be a factor if you were planning on buying the vehicle at lease end. In that case you would likely want a lower residual value because the buyout would be cheaper, but the flip side is your lease payments would be higher over the term of the lease. You are correct--a higher residual value at lease end would mean lower monthly payments.

2. How exactly is leasing beneficial for your business (tax-wise I presume) ? I have a small business ( essentially incorporated myself) and contemplate the leasing versus buying question repeatedly. Thanks.

The benefit to me is that I get to drive a new truck every three years to haul around my products, not worry about repair costs because of warranty, and yes, the expense of the lease reduces taxable income at tax time.

Sounds like you are a sole proprietorship? If so, you have to decide if the business use of your personal vehicle is more of a write-off than a lease expense. It probably isn't, but I'm not sure since my company is a "C" Corporation. You get to expense mileage related to business activities. I'm the exact opposite--I have to consider personal use of the business vehicle as income and declare it on my W-2, though in my case it's so small it's almost nothing.

 

[dsps70]

The residual value is set by the bank that originates the lease and is not negotiable. I select vehicles based on my needs and my budget. Selecting a vehicle based on the residual value could be a factor if you were planning on buying the vehicle at lease end. In that case you would likely want a lower residual value because the buyout would be cheaper, but the flip side is your lease payments would be higher over the term of the lease. You are correct--a higher residual value at lease end would mean lower monthly payments.



The benefit to me is that I get to drive a new truck every three years to haul around my products, not worry about repair costs because of warranty, and yes, the expense of the lease reduces taxable income at tax time.

Sounds like you are a sole proprietorship? If so, you have to decide if the business use of your personal vehicle is more of a write-off than a lease expense. It probably isn't, but I'm not sure since my company is a "C" Corporation. You get to expense mileage related to business activities. I'm the exact opposite--I have to consider personal use of the business vehicle as income and declare it on my W-2, though in my case it's so small it's almost nothing.

Thanks ... I’m a S-Corp....I really Need to revisit this whole issue of lease vs buying ...especially since I’m in the market for a new vehicle in the next 3-4 months...I will definitely use your tactics though. And maybe I could shoot you a PM message if I have further questions. Thanks again.


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[Purplert]

Some here know my opinion on leases and how I feel they are a terrible way to purchase a vehicle. I’ve been called names and shunned by a few members here for my opinions on this subject so I will not be posting anything further for the sake of keeping this thread from becoming nasty.

Then why post this...


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[PowrRam]

Thanks ... I’m a S-Corp....I really Need to revisit this whole issue of lease vs buying ...especially since I’m in the market for a new vehicle in the next 3-4 months...I will definitely use your tactics though. And maybe I could shoot you a PM message if I have further questions. Thanks again.


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As a S-Corp, and if you are profitable, you have some research to do as to what to do in this situation, especially with the new tax rates from tax legislation late last year.

If you want to PM me with questions, go right ahead.

 

[quietpeen]

is there a tldr version?

 

[PowrRam]

is there a tldr version?

Sure.

1. Don't put any money down on a lease.
2. Don't lease for longer than 36 months because the warranty runs out after 36 months.
3. Don't accept the published prices. Use that as a guide and drop down about 20% to 25% lower as your starting point.
4. Don't buy more miles than you will use. Go for a 10,000 miles per year lease instead of 12,000 per year if you can swing it.
5. Get offers on similar vehicles from two dealers and pit them against each other.
6. Negotiate at the end of the month.

 

[tidefan1967]

Some here know my opinion on leases and how I feel they are a terrible way to purchase a vehicle. I’ve been called names and shunned by a few members here for my opinions on this subject so I will not be posting anything further for the sake of keeping this thread from becoming nasty.

I’m not big on leasing either but didn’t the OP say he did it for business reasons?

 

[MADDOG]

Disregard Ravjay12's post here. He has become irrelevant and excess to forum needs.

 

[BossHogg]

Monthly Payment = (Capitalized Cost - Residual Value) / number of months
(there is also a finance charge involved but I'm not including it for the sake of simplicity.)


12. Stick to your guns. If you say, "My budget is $375 a month", stick with it. Don't let new car fever get a hold of you. Resist that devil. Remember #5 but in reverse--Salesman says he can do the deal at $389/month, that's only $14 more." No, actually it's $504 more (over 36 months.)

One place dealers make coin on is the financing. When you lease a vehicle, you are negotiating a purchase price of the vehicle, the leasing agent will buy the vehicle for the number you negotiated. Very important to remember this.

Leases do not use an interest rate, they use what they call a money factor, regardless of what they call it, it is the cost of using the money over the term of the lease. Most folks focus on the interest rate when they buy a vehicle but few will ask what the money factor of the lease is, this is where they get ya.

Always ask for the money factor, it will be a decimal number like .0025 for example. To make sense of this factor and what the cost of the money is, multiply the money factor by 2400 to get the interest rate. Make sure you are sitting down before you complete the calculation. In this example, the money factor of .0025 equates to 6% interest. As always, your credit score will dictate what you can buy money for.


Also, remember the number one golden rule of acquiring a new vehicle (lease or purchase), never ever tell the salesperson your budget. If you do, I guarantee you will get your vehicle for your budget amount or just a bit more. I don't need to explain this further, do I?

 

[troutspinner]

Great write up, thank you for the effort @PowrRam. I’ve never leased but have had dealers tell me I should as I work for myself (S Corp) and put low miles on my vehicle(s). Problem is with the business and the vehicle is that my accountant tells me it isn’t worth the trouble as I put less than 1,000 business miles on a year so that really doesn’t give me any advantage? Or am I not understanding correctly?

The other issue I have is if I lease 2 vehicles for 3 years consecutively.....at the end of 6 years, I’ve spent (for easy numbers let’s use $400 per month, sign and drive) $28,800 and have nothing at the end. With a similar vehicle, if I finance for 5 years at $600 per month I’ve spent $36k. Roughly 7k more but I own the vehicle and at the end have 18k or so equity. In affect, I have 11k +/- in my pocket that I would not have had with a lease. Do you agree with my statement? Are my numbers realistic?

I obviously would not get the lease benefits, new car every 3 years, 100% warranty the whole time of ownership, etc. I know some people who lease and I often wonder if they’re just trying to live on a level that’s above them as you can get a higher end vehicle via leasing. They are younger than me and I suppose it could just be the trend but it’s difficult for me mentally to spend money on something I’ll never own. You wouldn’t recommended renting a house over buying would you? This is how I kind of view it.

 

[PowrRam]

Also, remember the number one golden rule of acquiring a new vehicle (lease or purchase), never ever tell the salesperson your budget. If you do, I guarantee you will get your vehicle for your budget amount or just a bit more. I don't need to explain this further, do I?

Yes, my choice of "budget" as a word in that section was a poor choice.

 

[PowrRam]

Great write up, thank you for the effort @PowrRam. I’ve never leased but have had dealers tell me I should as I work for myself (S Corp) and put low miles on my vehicle(s). Problem is with the business and the vehicle is that my accountant tells me it isn’t worth the trouble as I put less than 1,000 business miles on a year so that really doesn’t give me any advantage? Or am I not understanding correctly?

Your accountant is correct in that there is no business tax advantage for you to lease. There are other factors that might make leasing a good choice, however, which you list--full warranty for life of lease, new car with new tech and safety features every three years, lower payment than vs. financing, no down payment, and low maintenance costs.

The other issue I have is if I lease 2 vehicles for 3 years consecutively.....at the end of 6 years, I’ve spent (for easy numbers let’s use $400 per month, sign and drive) $28,800 and have nothing at the end. With a similar vehicle, if I finance for 5 years at $600 per month I’ve spent $36k. Roughly 7k more but I own the vehicle and at the end have 18k or so equity. In affect, I have 11k +/- in my pocket that I would not have had with a lease. Do you agree with my statement? Are my numbers realistic?

If you financed for 60 months at $600 per month, what was the purchase price of the vehicle? A zero down, sign and drive lease with a payment of $400 a month is roughly equivalent to a vehicle with a negotiated sell price of $38,000. However, I doubt a dealership would let you finance the entire purchase amount. Unless I'm mistaken, they typically want a down payment, I'm guessing at least 20% maybe more. (It's been so long since I've purchased, I don't know.)

Suppose you bought that vehicle for $38,000. What was your down payment on the vehicle you purchased for $38,000? Let's say it was $8,000. That means you financed $30,000. Let's say your interest rate is 4%. For a 60 month loan your payment would be about $550 a month. After 60 months you would have paid $33,000 principal plus interest, plus $8,000 down. So, $41,000 over five years.

After five years I'd guess you'd put on 50,000 to 60,000 miles and the vehicle is worth $18,000. In those five years you've bought new tires ($800), done a brake job ($400) and maybe some other stuff, oil changes and tire rotations, fluid changes, let's say $800 worth. So another $2,000 in maintenance costs.

Now, after five years you've spent $43,000 on the vehicle and it's worth $18,000. You sell it and your net cost to have owned that vehicle is $25,000. Yes, that's less than the $28,800 you paid to lease two new vehicles for three years apiece. Not really apples to apples because of the five years of ownership vs. six years of leasing, though. Still, for $633 a year more you have had two new vehicles, you have no unexpected repair cost worries, you have no real maintenance expenses. You didn't take $8,000 out of savings to put down on something that depreciates. To a lot of people that is worth it.

And this is just one example of how the numbers might shake out. Different numbers might give better results to a lease; might give worse results. My wife drives a 2016 Dodge Charger V6 all wheel drive, power/memory/heated/ventilated leather seats, climate control, 8.4 UConnect, keyless FOB, Parksense, etc. etc. which we got for absolutely nothing out of pocket, plus they paid off her previous lease on her Altima. We are paying $257 a month for 36 months. I think that is outstanding.

The numbers on the Charger to buy would have been perhaps $28,000 purchase price, say $6,000 down, financing $22,000 for 60 months. At 4% that would be $400 per month. No thanks, I'll do the lease for $257 a month, keep my $6,000 down payment and invest it in a mutual fund and make a little bit of money on it.

I obviously would not get the lease benefits, new car every 3 years, 100% warranty the whole time of ownership, etc. I know some people who lease and I often wonder if they’re just trying to live on a level that’s above them as you can get a higher end vehicle via leasing. They are younger than me and I suppose it could just be the trend but it’s difficult for me mentally to spend money on something I’ll never own. You wouldn’t recommended renting a house over buying would you? This is how I kind of view it.

Leasing is somewhat of a mental hurdle to get over, that's for sure.

 

[adrianp89]

Great tips here, a lot of which can be applied to purchasing as well.