Car Lease Negotiation

Many motorists prefer to lease a car instead of buying one outright. Not only does leasing offer the convenience of fixed motoring costs, but it is a less expensive option: the car’s gradual depreciation during the contracted period is considered - instead of its list price alone - to calculate the required monthly fee.

 

Additionally, with record low interest rates and high resale prices for used vehicles currently, leasing is an all the more attractive option for drivers at this time.

However, many consumers do not question the prices quoted for lease deals of interest, and do not realise that the involved costs can nearly always be negotiated, as is the case when buying a vehicle.

But why? And how? Read on the find out...

Understand the financer’s role - and ‘cap cost’ - before attempting to negotiate a lease

It is important to understand that the company financing your lease is essentially purchasing your chosen car on your behalf. As such, they will want to ensure that they get as much of the car’s purchase price back as possible, through your monthly payments as well as other applied costs (the acquisition fee, non-refundable deposit and any relevant end-of-lease penalties, for example).

However, once your lease agreement has ended, the financer will make additional revenue from the resale of the vehicle (assuming you do not decide to purchase it, of course). This means they are very likely to get their money back, and then some.

To determine if you’re being offered a decent deal - and how much room there may be for negotiation - you should look at the capitalised cost of the lease. The ‘cap cost’ is the total of the car’s value you will actually finance during the lease and therefore, it is the figure with the most influence over monthly payment cost (and the amount of profit to be made by the dealership). A ‘capitalised cost reduction’ may also be awarded: this figure is the total discount applied to the cap cost as a result of a manufacturer rebate, the trade-in value of your old car and/or other deductions (if applicable).

 

It is recommended that you express interest in purchasing the car outright before discussing your desire to lease with the dealership.  You can negotiate the purchase price first, and then ask for a lease deal to be calculated based on that quoted price.

Don’t focus on the cap cost and monthly leasing fee alone

Aside from the cap cost and resulting monthly fee, there are a number of other leasing costs which you should investigate in order to determine the true value of any deal offered to you:

  • Disposition fee: Most lessees will face a disposition fee should they decide not to purchase the vehicle once their contract has matured. This fee is designed to cover costs involved with the dealership’s resale of the vehicle and its storage in the meantime.
  • Purchase option fee: You may (somewhat ironically, considering the before point) also be charged a fee should you decide to purchase the vehicle instead of handing it back to the financer at the end of your agreement.
  • Early termination fee: In the event you decide to end your lease prematurely, you will face a significant penalty fee. The total fee applied will be dependant on how much of your agreed lease period remains but the dealership should provide you with example estimates (the amount you could face if termination occurs with six months remaining, for example).  NOTE: This penalty fee is often harder to negotiate.
  • Penalty charge per exceeded mile: For each mile on the car’s odometer above the contracted mileage allowance, you will be charged a fee. If you think you’re likely to exceed the agreed total, you could ask for additional miles to be included in your contract (NOTE: the cost of extra miles may be spread across your monthly lease payments), or attempt to negotiate a lower penalty fee.
  • Penalty fees for damage: You should be clear as to what the dealership considers to be ‘fair wear and tear’ and what penalty fees you may face should you return the car in a condition less than ‘fair’.
  • Maintenance: You should also question whether or not any complimentary maintenance will be included as part of your contract.

Understanding the application of these fees for a potential lease will see you well positioned to negotiate. Ensure you know the figures related to all of the above before signing any lease contract.

Think about your choice of car carefully

If you’re not especially bothered about driving one of the latest cars, you should consider leasing one which is shortly due to be replaced by a newer model. This means it will soon be part of surplus stock, and you’ll have a greater chance of negotiating a good discount as a result.

You may also like to investigate whether the dealership is offering any capitalised cost reductions for certain manufacturers/models.

 

You’ll also want to pick a model that will not suffer too much depreciation over the lease period (i.e. one that has high ‘residual value’). A dealership will more readily - and more generously - negotiate leasing costs for such vehicles, because they are responsible for the resale when it is returned. There is less room for dealerships to make profit on car’s which lose their value quickly.

An additional point: securing a lease deal with low monthly payments isn’t particularly worthwhile should you end up disliking the car you have selected! As such, make sure you test drive any motors of interest at least twice before signing any documentation.

Be confident!

Unfortunately, it is the case that some salespeople will claim their lease prices are completely non-negotiable (or will only reduce them nominally) should they feel the wannabe-lessee is a pushover! Be confident and make it clear the request for a reduction is based on competitor research and the true current (and future) market value of the car. 

Never be pressured into agreeing to any deal you are unsatisfied with - salespeople may try to tempt you with (inexpensive) bonuses like cars mats, or free oil changes throughout the lease period.

Remember: you can always visit other dealerships to see if they will better the offer given to you.

Do not get emotionally attached to the car

Lastly, you’ll want to avoid falling in love with your leased motor, or else you might be tempted to purchase it once your agreement matures - this will usually see you paying far more than its original list price.

Need help negotiating a fantastic car lease deal?
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