Getting the Best Vehicle Lease Takes Knowledge
There’s no mystery to being a leasehackr. It’s simply leveraging information you aren’t supposed to know, but will after you review the following. The challenge lies in getting the latest information. You need to be as well up on pricing, incentive plans and all the “Leasing 101” terms as any dealer, bank, credit union or leasing company to get the best deal on your next new car lease. Hacking is a participant sport. Do it right and you’ll save money and maybe, almost, nearly, have fun doing that. And the best leasehackr for you should be you.
The Big Hack
A Car Lease Is a Contract
A vehicle lease is a contract. And, as with every contract, it must be negotiated. Ultimately, it should be beneficial to both sides signing it. Whichever institution leases you your car wants you as a customer, but they’re in business to make money – and they lease cars every day. You won’t get them to do anything truly stupid.
Negotiate a Car Lease for Balance
Your negotiations are a balancing act. You want a low monthly payment, but don’t want to put up a lot of cash up front. You want to find the best model vehicle for you, but don’t want to be led astray by your own desires. You’ll want a lease that meets your price and mileage needs, but you don’t want to spend too much time obsessing over it.
A Hack Isn’t a Shortcut
There’s no secret code to enter to get the best deal. And what you start off seeking in a lease, may not ultimately be the best deal you can negotiate. Be flexible and look at every lease on a total cost basis. Not just at the size of the monthly payment. A great hack isn’t a shortcut or a workaround; it’s the smart leveraging of information. It’s strategic and not a roll of the dice. When leasing a car, you’re almost partners with the leasing company. But that doesn’t mean there isn’t room to life hack and optimize that lease successfully. Let’s go through this methodically like good hackers looking for openings in the system. We’ll take from the top and proceed in bite size chunks. Then hack away.
The 38 Hacks
Hack #1: Know if You Should Lease
A leasehackr knows that leasing isn’t for most people. You should be well settled into your career and lifestyle, drive in predictable ways, and know how it works for both your financial and tax situations. The kind of person who logs their vehicle’s mileage and rarely goes for spontaneous drives cross country. You know, boring. There may also be advantages to leasing through your company account if you own your own business. This is something you should discuss with your legal and financial advisors.
Hack #2: Know Your Credit and FICO Score
An excellent credit rating is always advantageous. And you should be aware of what your credit rating is before seeking to lease any vehicle. Many of the very cheapest leases – usually those supported financially by the manufacturers – are only available to consumers with sterling credit scores of, say, 740 or better (on a scale of 300 to 850). This doesn’t mean you can’t get a lease with a lower score, but it will likely be more expensive. Know where you stand. You can get a free or low-cost credit report from the web sites of reporting companies like Experian or Equifax. Credit scores are often referred to as FICO scores, which is shorthand for Fair, Isaac & Company, the data analysis firm that pioneered the credit rating business. FICO stuck so solidly that the company ultimately changed its name to FICO in 2009.
Hack #3: Be Sure You’re Stable Professionally
A lease contract sticks around even after you’ve been canned or quit or retired or have been sentenced to prison. Leases are best for people who know where they’ll be for at least the term of the lease. If you have a secure income with good long-term prospects and little chance of a location transfer and a good credit rating, you’re the type of person to whom a leasing company wants to sign a contract.
Hack #4: Have Conservative Driving Habits
Leases come with mileage limits – often less than 1,000 a month. If you have a defined regular commute, and only a slight case of wanderlust, you’ll be able to confidently predict your monthly mileage and know if it’s likely to remain within the lease limits.
Hack #5: Be Tidy
If you’re a slob or smoker or have large dogs with an appetite for upholstery, leasing isn’t likely for you. A lease car may be yours to drive, but you’re not the owner. The leasing company will expect the car to be returned to excellent condition at your expense.
Hack #6: Know Your Tax Situation
Your new car lease may be tax deductible. The United States Internal Revenue Code runs to almost 10,000 sections and each has inscrutable intricacies. There are literally millions of different tax situations, and it’s always a good to consult with your really smart tax professional before leasing anything. If you can write the whole lease or parts of it off, that’s kind of awesome.
Hack #7: Know the Elements of a Lease
These are the components of a lease every leasehackr must know. At least theoretically, each element can be individually negotiated. The best lease for you, may not be what’s initially offered by the lessor. If a lessor won’t negotiate, there’s always another bank, credit union or leasing company down the street. And every leasehackr’s ultimate weapon is to walk away and go someplace else.
Hack #8: Know What’s in Your Monthly Payment
Advertised lease payments tend to end with a nine at their end — $199 per month, $299 per month… — but that’s not the true total cost of the lease. There will be sales taxes to be included in most states plus registration and maybe insurance fees. Know what the tax situation is in your state before you start negotiations and don’t be surprised by these charges.
Hack #9: Know the Lease’s Term
The least term is simply how long you, the lessee, will have use of the leased vehicle. Many advertised leases run for two years (24 month) or three years (36 months). But a few have less obvious term lengths like 39 or 42 months to spread out the payments to a more attractive price point like $199 per month. You should be able to negotiate a term that meets your particular needs.
Hack #10: Negotiate the Purchase Price
Every lease starts with a purchase. That is the leasing or finance company buys the vehicle from a dealer on your behalf for your use. As in any other purchase, this price is negotiable. And that price, minus any pre-paid reductions (the next topic), is the capitalized cost. Negotiate the lowest purchase price possible like a leasehackr. Duh.
Hack #11: Get the Leasing Company on Your Side
It may be that your leasing company can act as a broker to get the best deal. For instance, the leasing company may be better than you are at negotiating a low purchase price from a dealer. They may even have dealers they work with regularly that offer them good deals. Ask.
Hack #12: Know the Capitalized Cost
The capitalized cost is the amount of money the leasing company (lessor) puts up to acquire the vehicle. And it will expect to collect interest on that money during the course of the lease’s term.
Hack #13: Reduce the Capitalized Cost
Any payments or incentives that knock down the total capitalized cost is, naturally, a reduction. These “cap cost reductions” can be several things such as a car traded into the dealership which then pays that money into the lease. Or a factory incentive where the manufacturer pays the dealer to reduce the capitalized cost. Or, most obviously, money you pay up front to reduce the capitalized cost in exchange for lower monthly payments. The trade-off here is a direct one. The greater the capitalized cost reduction the lower the monthly payments. And the ultimate cap cost reduction is simply to pay the entire lease cost when you sit down to sign the lease. That would avoid the hassle of monthly payments altogether.
Hack #14: Your Affinity Group Can Help with Your Lease
One hidden buy-down on capitalized cost may be an affinity group like AARP or USAA or dozens of others. It could even be that there’s a discounted price available through a warehouse buying club. If you’re a member of AAA or another auto club, a quick look at their site may uncover some discounts that can be applied to your lease. Consulting with them on your next lease can be valuable. But remember, ultimately you’re the one signing the contract. Do it like a leasehackr.
Hack #15: Know the Acquisition Fees
These are simply charges the lessor adds on for hunting down and buying the car. These fees can range from minimal to outrageous, and you should be on the look out as a leasehackr for ways to negotiate the lowest ones possible. It may not always be possible. Be particularly aware of these fees being obscured from advertised lease specials. Toyota’s New York region, for example, notoriously doesn’t include a $650 acquisition fee in the advertised price of its factory-backed lease deals. Acquisition fees will usually be rolled into the capitalized cost of the lease.
Hack #16: Know the Disposition Fees
At the end of the lease you may owe a “disposition fee” to help the dealer get rid of the hulk. Be very careful with disposition fees because they may be hidden incentives to get you to sign up for another lease. The lessor or dealer my negotiate them away if you sign up for another lease. Not all leases include disposition fees and you should try and minimize or eliminate them from yours before you sign the lease in the first place.
Hack #17: Know the Money Factor
This is the interest paid on the loan used by the lessor to acquire the vehicle. While you aren’t directly borrowing this money it’s among the most direct ways to compare offers from different lessors. For example, the money factor paid by a credit union may be significantly less than that paid by a bank or finance company. Always know the money factor before signing any lease. And always know what other lessors are paying.
Hack #18: Negotiate Your Mileage Allowance
Every lease allows for a certain amount of use of the vehicle. Maybe 1,000 miles a month, often less. You can negotiate for more or less miles if that will fit your projected use of the vehicle. Negotiating the precise number of miles that fits your life can be diabolically difficult. After all, you’re literally predicting what you’ll need over a series of years. A leasehackr may find that some of this dilemma can be resolved by negotiating a good rate on additional miles.
Hack #19: Be Aware of Additional Mileage Charges
If you exceed the agreed upon you will be charged at a per mile rate. Maybe that’s 15-cents per mile on an economy car, and could be 50-cents per mile for a luxury vehicle. The difference between, say, 15-cents and 20-cents per mile may seem slight. But if your blaze through an additional 20,000 miles on your lease that’s a $1,000 difference. Take a look at various advertised factory-backed leases to get a sense of what the additional mileage charges are in the vehicle category in which you’re shopping.
Hack #20: Know and Negotiate Residual Value
This is the projected value of the vehicle at the end of the lease term. It’s an agreed upon price that can be negotiated – but only slightly. Most lessors will use a known source like Auto Lease Guide (ALG) to determine the residual value at the end of the lease. The vast majority of consumer leases are “closed end” leases with the agreed upon residual value at the end of the lease. That means for, say a small SUV, it may cost $30,000 to acquire and will be worth $20,000 at the end of a three-year lease. The lessee (that’s you) will have to cover that depreciation in the payments.
Hack #21: Understand How a Closed-End Lease Works
A closed end lease is one where both parties know what the vehicle’s depreciated value will be at the end of the term – assuming only normal wear and tear and mileage within the lease’s limits. Usually the lessee will have a purchase option to acquire the vehicle at lease end at that price.
Hack #22: Don’t Worry about Open-End Leases
Open end leases are more commonly used for commercial vehicles. And usually involve a balloon payment at lease end to cover the depreciation of the vehicle.
Hack #23: Watch out for Purchase Option Fees
If you’d like to purchase your leased vehicle at the end of the term, the lessor may require a fee paid to exercise that option. If you anticipate buying the vehicle at the lease end, try the leasehackr approach and negotiate out this fee before signing the lease. If you can muster that much foresight, good for you.
Hack #24: Know about Gap Insurance
Gap insurance is simply protection from owing more on a totaled or stolen vehicle than it’s worth. Don’t buy it reflexively at the dealership; it’s quite likely that your existing comprehensive insurance policy already covers this “gap” should it arise. Or your current insurer can offer you a much lower rate.
Hack #25: Know What You’re Paying For
Take a breath here. What you pay is simply the amount of depreciation (D) between the purchase price (PP) and residual valve (RV), minus any paid capitalized reduction (CR), plus the cost of the money factor (MF) used to buy the vehicle, plus any acquisition and disposition fees (ADF), plus any additional mileage charges (MC) minus any incentives (I).
Total cost = PP-RV-CR+MF+ADF+MC-I
Remember: Simple Things Matter
Besides negotiating all those lease elements, there are some simple hacks to getting the best lease deal.
Hack #26: Technology Is Your Friend
Right now you’re reading advice provided to you over the Internet for no charge. Always have your communications devices handy when it comes to negotiating a lease deal.
Hack #27: Technology Can Crush You Too
What you read on some electronic bulletin board may well be complete hooey. Don’t be misled by legends passed along by people you don’t know swapping implausible stories of incredible discounts or dealer blowouts.
Hack #28: Sites Matter
Any institution you’ll deal with when securing a lease will have a web site. But of particular use will be manufacturer web sites for the new car brands. They will usually have “Special Offer” tabs that lead to lists of lease offers. If nothing else, these are good comparison tools for framing your negotiations.
Hack #29: Talk to Real Humans
Ultimately it will be human beings with whom you will be negotiating your lease. Be pleasant, but don’t get caught up in distracting chitchat. Be a good leasehackr and use the telephone to call with questions before seeing anyone in person.
Hack #30: Lease the Right Vehicle
It may be tempting to lease an exotic car, but the best deals will always be on popular, mainstream products that hold their value well. Cars like the Honda Accord and Toyota Camry are known commodities with a consistent market for used, off-lease examples. Plus they’re built in utterly astonishing numbers – so you should be able to negotiate a low capitalized cost at the start of the lease, and a high residual value at the end. That’s a recipe for a cheap lease. Don’t shop for a lease with your heart. Shop with your head and go for the ordinary.
Hack #31: Sell Your Trade in Yourself
Dealers look at every deal in a comprehensive way. If you have a car you own to trade in for a lease, the dealer will look at that car as an element of the whole deal and will coldly evaluate how much potential for profit there is in your trade in. The less they offer for your trade in, the more upside for them when they re-sell it. And the less money there is going to reduce your capitalized cost. So as a leasehackr, maybe don’t trade it in. You can almost always make more money selling your used car yourself. Don’t get mesmerized by some low monthly payment on the lease; the math may well be that you’re better off paying a bit more every month and having a couple thousand more dollars in the bank right now.
Hack #32: Know Residuals
It’s one thing to hazily know that the residual value of, say, a Chevrolet Equinox may be in three years. But you’re better off also knowing the difference between the residual value of the base Equinox LS with two-wheel drive and 1.5-liter turbo engine and the residual value of the Equinox Premier with all-wheel drive and the 2.0-liter turbo engine. The best deal may be on the most popular trim level in the line. In the case of the Equinox for example, that could be the middle-of-the-range LT model. After all, you also want to drive a car you like during that lease.
Hack #33: Don’t Obsess over Monthly Payments
A leasehackr knows you need to do the math and calculate your costs yourself. The best deal may be to load up on reducing the capitalized cost. Or maybe paying more per month. Take your time and do the calculations.
Hack #34: Seek out Factory Deals
If your credit score glistens with brilliance, seek out factory deals that are supported by the factory. And look at direct competitors’ sites too –- don’t be so picky that you must have a Mazda CX-5 when Ford has a much better deal on its Escape. And it may be that you can leverage your knowledge of the deals available on competitors to get a better deal on the vehicle you do want.
Hack #35: Canvas Dealers
Dealers are always fighting to attract customers. They have metal and they want to move it. It may be that a dealer with, for some reason, a large inventory of one vehicle is looking to dump them at a killer lease price.
Hack #36: Beware the F&I Guy
Once you’ve dealt with the salesperson at a dealership, you’ll likely be handed off to the “Finance And Insurance” (F&I) office to close the transaction. The “F&I Guy” is often a women and usually the best sales person on staff and tasked with adding as much profit as possible to each deal. A leasehackr will turn down the F&I guy’s offers almost immediately.
Hack #37: Admit Your Ignorance
Don’t be so proud that you end up overpaying for a lease. Seek out help from your accountant, your lawyer, your clergy member. Anyone who knows more than you.
Hack #38: Don’t Take Anything for Granted
Be painstaking in your inspection of the documents. Have every item explained and challenge any that seem fishy. For instance, there may be an item added marked “ADP.” What is ADP? Sometimes it stands for “Additional Dealer Profit With all this information in hand, you can now hack your own car lease deal like a leasehackr.