A car is a major expense whether you are purchasing or leasing. Understanding how leases work and negotiating the most favourable terms will help you save money. Remember that your most important assets when negotiating a car lease can be found at the end of your legs: your feet. If you don't get a good offer, take your business elsewhere.
When you lease a car, it belongs not to the dealership, but to a leasing company. You may never interact directly with the leasing company; the transaction may be handled entirely by the car dealership. The price at which the dealership sells the car to the leasing company is called the capitalised value, or cap cost. When you are leasing a car, negotiate with the dealership for a lower capitalised value or cap cost. The lower the price of the car, the lower your lease payments will be.
Even though lease payments are lower than car payments, you want to get that payment as low as you can. After all, with regular car payments you are building equity in a vehicle. With lease payments, you are building no equity. In addition to negotiating, you may also be able to increase your down payment to reduce the capitalised value. A lower initial capitalised value can also benefit you at the end of the lease term if you decide to purchase the car.
Your lease will allow you to drive a certain number of miles every year without penalty. Exceed that number and you pay additional fees at the end of the lease. When you are leasing a car, negotiate for the highest number of miles--try to get 15,000 miles per year. Do not pay for additional mileage up front. You won't get a refund if you don't use all of the miles.
Before you sign a lease, make sure you read it carefully and understand all of the terms and conditions. Violating lease terms can cost you additional money. Pay special attention to maintenance schedules. Lease terms that require you to have the car serviced at the dealership can add to your costs.
Purchasing at Lease End
At the end of your lease term you will probably be given the option of purchasing the car. The price you will be quoted is usually called the Residual Value and is probably more than the market value for the car. Near the end of your lease, research the market value for your car and if you want to buy it, offer the lease company an amount at or under market value. Remember that the company has already earned a great deal of profit on the original sale of the car and the fees for handling the lease. Don't fall for arguments that the company is losing money.