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How to Negotiate a Car Lease

Know the Negotiable Terms for Your Lease

• Car leases are made up of many factors that determine the final price and many of these factors are negotiable.

• By understanding the factors that make up the final price, you can negotiate your way into a cheaper lease.

Capitalized Cost

• The capitalized cost, or cap cost, is the negotiable value of the vehicle – which factors into the final cost of the lease.

• The cap cost does not include anything that you agree to pay for over the lease term (amortized amounts), such as: – fees – services – insurance – taxes – any prior money balance

Lease Term

• The lease term is the period of time for which the lease agreement is valid.

• Lease terms range from 24 to 72 months.

• Choose the lease term that best fits your circumstances with no tough negotiations required.

Money Factor

• The money factor on a car lease is very similar to the interest rate on a loan, but calculated differently. – Generally, the money factor will mirror current loan rate

offerings.

• The money factor is typically not disclosed without being requested. – You may think you’re getting a good deal, then wind up

paying more because of a higher money factor that you weren’t aware of at signing.

How to Calculate the Money Factor

• As opposed to a common percentage for an interest rate a money factor is expressed as a decimal (6.0% vs. 0.0025).

• Multiplying the money factor by 2400 will produce the equivalent interest rate (0.0025 x 2400 = 6.0%).

• The leasing company ultimately controls the money factor, however the dealer may be able to adjust it making it negotiable.

How to Negotiate the Money Factor

• Similar to a conventional automotive loan, it’s important to understand that it is unlikely to see a dramatic drop in payment solely from a better rate.– In most markets, dealers are pressured by market forces to

offer competitive rates initially.– Regardless, it makes sense to inquire about a lower rate and

it’s unlikely that a dealer would opt to lose a customer over lower rate markup in most situations.

• To get a feel for the current money factor market, research real-time quotes for leases including money factors, residuals and associated costs of a lease.

Residual Value

• The residual value is the amount the vehicle is projected to be worth at lease end. – The residual value is typically calculated by multiplying

the MSRP of the vehicle by the residual value percentage provided by the leasing company ($30,000 MSRP x 50% = $15,000 residual value).

• Even though the residual value is not negotiable, the value will vary significantly based on lease term, mileage allowances, and vehicle equipment.

Residual Value

• Residual values are used to determine the amount of depreciation over the lease and to help in establishing the lease-end buyout price.

• Higher residual values are favored because they equate to lower monthly payments (with the potential exception being when the lessee is committed to purchasing the vehicle at lease-end).

• Generally speaking it is recommended to lease with the intent of leasing again as opposed to buying the vehicle at lease-end due to unknown market conditions.

Residual Price

• Residual values are forecasted through historical used car sales data analysis.– It is common for popular, exciting, and reliable vehicles to sell for relatively

high prices on the used market creating value opportunities on new leases.

• Note the example below illustrating how a more expensive vehicle can actually result in a similar monthly payment when leasing:

Vehicle A Vehicle B

Cap Cost $20,000 Cap Cost $25,000

Term (months) 36 Term (months) 36

Residual Value $10,000 Residual Value $14,000

Monthly Payment (before interest & taxes)

$278Monthly Payment (before interest & taxes)

$305

Are you Getting a Bargain?

• The best way to find out whether you’ve gotten a good deal is to compare it to other leases that are on the market.

• In the end, your goal should be to try to beat the lowest payment and terms on a similar vehicle.

About Swapalease.com

• Swapalease.com is the world’s largest vehicle lease marketplace.

• Our goal is to match individuals who want to get out of their lease, with individuals who are looking for short-term leases with attractive payments and no money down.

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• For tips and tutorials on transferring your lease, check out the Swapalease.com blog.