Many thanks mildone. So let’s say the manufacturer is providing a sales allowance or incentive. You use that to negotiate the cost as if buying. When you use that cap cost to calculate the lease price, is it fair to still include the allowance/incentive?
OT: Car Leasing Thread
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I'll jump in here and let @mildone add on if he wants to. The net cap cost is one aspect of how your lease payment will be calculated, and yes you can include allowances/incentives/trade-ins/down-payments in factoring your net cap cost.
Once you have that, the other factors are the residual value (RV) and money factor (basically an interest rate) being used.
Here's a hypothetical scenario. You have a car you like with an MSRP of $30,000. You've managed to negotiate a purchase price of $28,500 and the dealer agrees with you in writing. Then you tell him you have a trade in, and you mutually agree that is worth $3,500. You opt not to put a down-payment. So your net cap cost is $25,000 ($30,000 MSRP, negotiated down to $28,500 minus your trade in of $3,500 = $25,000)
So now that you have the $25,000 net cap cost as the starting point, the RV comes into play, which will be a fixed number based on the original MSRP. This is basically what the dealer thinks the car will be worth once your lease is up and will vary depending on the term of your lease and the annual mileage built in. Let's say you plan to lease for 36 months and the dealer is proposing a RV of 60%, which will be applied against the original MSRP. 60% of $30,000 is $18,000, so the dealer feels they can re-sell your car for $18,000 once your 36 months lease is up. But you've negotiated a net cap cost of $25,000. The difference between your net cap cost & the RV is $7,000
In your case $7,000 over 36 months, or $194/month.
But wait, there's interest of course, or as leasing goes, the Money Factor (MF). Dealers will play around with this a lot to lease where they have tons of inventory and offer really low MFs to incent you to lease certain models. The MF may be .002. That factor is applied against the net cap cost PLUS the RV. In your case, $25,000 + $18,000 = $43,000.
So $43,000 x .002 = $86/month
Now add the monthly depreciation (RV factor) to the MF and you have a lease payment of $280/month ($194+$86).
Sales tax will be worked in as well.
So you can see how the factors that really drive a good lease deal are (1) net cap cost, (2) RV, and (3) MF.
You'll show the dealer you know what the hell you're doing.
Once you have that, the other factors are the residual value (RV) and money factor (basically an interest rate) being used.
Here's a hypothetical scenario. You have a car you like with an MSRP of $30,000. You've managed to negotiate a purchase price of $28,500 and the dealer agrees with you in writing. Then you tell him you have a trade in, and you mutually agree that is worth $3,500. You opt not to put a down-payment. So your net cap cost is $25,000 ($30,000 MSRP, negotiated down to $28,500 minus your trade in of $3,500 = $25,000)
So now that you have the $25,000 net cap cost as the starting point, the RV comes into play, which will be a fixed number based on the original MSRP. This is basically what the dealer thinks the car will be worth once your lease is up and will vary depending on the term of your lease and the annual mileage built in. Let's say you plan to lease for 36 months and the dealer is proposing a RV of 60%, which will be applied against the original MSRP. 60% of $30,000 is $18,000, so the dealer feels they can re-sell your car for $18,000 once your 36 months lease is up. But you've negotiated a net cap cost of $25,000. The difference between your net cap cost & the RV is $7,000
In your case $7,000 over 36 months, or $194/month.
But wait, there's interest of course, or as leasing goes, the Money Factor (MF). Dealers will play around with this a lot to lease where they have tons of inventory and offer really low MFs to incent you to lease certain models. The MF may be .002. That factor is applied against the net cap cost PLUS the RV. In your case, $25,000 + $18,000 = $43,000.
So $43,000 x .002 = $86/month
Now add the monthly depreciation (RV factor) to the MF and you have a lease payment of $280/month ($194+$86).
Sales tax will be worked in as well.
So you can see how the factors that really drive a good lease deal are (1) net cap cost, (2) RV, and (3) MF.
You'll show the dealer you know what the hell you're doing.
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Negotiate to the point you will walk, use that deal as a barometer with other dealers. It’s wll pretty easy actually. They will manipulate pricing until such time as you do that.
Always bought my cars but thanks for the illustration of how it all works. Heard of all the terms but never bothered to lookup what they meant and how they went together. Thanks for the education.
My first post was actually wrong, but I edited it to be correct. The RV will always be based on the original MSRP, not the net cap cost.
Yes, it's all negotiable. @ClassOf02 does a good job explaining it all. I still recommend reading through the site I showed you, which provides some calculators you can use to simulate scenarios mentioned by '02 and get sense of how it all works out.
Use the internet to identify the price people are paying for the car you want with the options you want before ever visiting a dealer. Make sure you're not paying more than that. In fact, know everything before you visit the dealership, including the sale price you want to pay, the interest rate you want to pay, the trade-in value you'll accept, the options you are willing to pay for, etc.
And like Cali said, once you do start visiting some dealerships, be prepared to walk away. Even better, make it your policy to NOT buy anything during your first visit to any dealership, and tell them about that policy right out front. They'll still try to get you to buy/lease before leaving, and in doing so, you might find yourself getting a truly good offer (one you KNOW is good because you did your homework up front and know what others are paying). If it's not a great offer, take the offer home and think about it, contact some other dealerships and see if they can beat it.
Dealers are brilliant at making customers think they got great deals. Everybody thinks they got great deals. Only way to know if you got such a great deal, though, is to know what everybody else is paying and know you paid less.
Explain How A Car Lease Works
Hear Dave break down, in detail, what a car lease is and why you don't want it.
https://www.daveramsey.com/askdave/automobiles/10367
No. You negotiate the price all by itself and then subtract the dealer incentives. They're getting the incentive anyway, it comes off their cost. So if the car is $42k and there's a $3k dealer incentive, the salesman tells you OK we can give you the car for $39k thanks to the dealer incentive, the dealer's not giving you a dime off the price of the car.
Check me on this-
When you have visited others dealerships and have offers...this is your BATNA.
Always try to improve your BATNA (Best Alternative to No Agreement)
Dealer invoice price: Which are the best sources of information?
Edmunds.com, carsdirect.com, kbb.com, autobytel.com, carbuyingtips.com
Thanx
Before even considering leasing, figure out if it will ever make sense. If you drive over 12-15,000 miles per year, it has rarely made sense to me to lease. Maybe things have changed since I last looked at leasing.
I have leased cars for quite awhile. One thing we have done is once an agreement is made I then tell them I want to prepay the 36 months ( 3 year 1 time payment lease). If they say 250 a month is lease then your total 3 years would be $9000. Now tell them you want lease lowered as they have their money upfront.
Also if someone owns a business here is a neat way to lease. Assume $40,000 car and business can afford any payment. Lease car thru busines, ask for the lowest possible residual value ie $1000. At end of lease purchase car for $1000 then have business sell car to you for residual value and then you either keep car or sell it. When you sell it you get money personally with no tax consequences and you had write off for 3 years.
Also if someone owns a business here is a neat way to lease. Assume $40,000 car and business can afford any payment. Lease car thru busines, ask for the lowest possible residual value ie $1000. At end of lease purchase car for $1000 then have business sell car to you for residual value and then you either keep car or sell it. When you sell it you get money personally with no tax consequences and you had write off for 3 years.
A lot of really good advice in here.
One thing I didn't see mentioned but may have missed...you don't have to even set foot in a dealership anymore, not until you have already agreed to your final price, lease terms, finance options, etc and are going in to sign and pick up the keys. You can use a site like TrueCar.com to get quotes from dealerships around you, or email dealers directly. Every dealer in this area has a dedicated internet sales person or team. Lay out what you want, show the best price you have been quoted, and ask if they can beat it. Make sure you request them to break out all fees, taxes, etc as you're looking for your total out the door price.
Some places won't negotiate this way but many others will. I leased a car in late 2014 and contacted the same dealer when I was looking for another a few months back. They wouldn't give me their best offer over email or the phone. Said I had to come in. Gave them a "no thanks" and they still called me every other day trying to get me in the door. When I said I was in agreement with another dealer, but hadn't signed, suddenly they were willing to give me a written quote. They basically matched the quote but I went with the dealer who was much more direct and better to work with.
It's easier said than done, but the best way to get a deal outside of what's been said already is to not be fixated on one specific make and model. If you just want a mid range sedan with good gas mileage, but no exclusive features, you'll have a great chance of stumbling on an amazing deal once you start negotiating across makes and dealers. Better chance of finding one with a lot of unsold inventory.
Oh and always be flexible on color. The first time you tell a dealer you want a car but it has to come a specific exterior paint, you're screwed.
One thing I didn't see mentioned but may have missed...you don't have to even set foot in a dealership anymore, not until you have already agreed to your final price, lease terms, finance options, etc and are going in to sign and pick up the keys. You can use a site like TrueCar.com to get quotes from dealerships around you, or email dealers directly. Every dealer in this area has a dedicated internet sales person or team. Lay out what you want, show the best price you have been quoted, and ask if they can beat it. Make sure you request them to break out all fees, taxes, etc as you're looking for your total out the door price.
Some places won't negotiate this way but many others will. I leased a car in late 2014 and contacted the same dealer when I was looking for another a few months back. They wouldn't give me their best offer over email or the phone. Said I had to come in. Gave them a "no thanks" and they still called me every other day trying to get me in the door. When I said I was in agreement with another dealer, but hadn't signed, suddenly they were willing to give me a written quote. They basically matched the quote but I went with the dealer who was much more direct and better to work with.
It's easier said than done, but the best way to get a deal outside of what's been said already is to not be fixated on one specific make and model. If you just want a mid range sedan with good gas mileage, but no exclusive features, you'll have a great chance of stumbling on an amazing deal once you start negotiating across makes and dealers. Better chance of finding one with a lot of unsold inventory.
Oh and always be flexible on color. The first time you tell a dealer you want a car but it has to come a specific exterior paint, you're screwed.
You negotiate the same way as you would if you were buying a car. Then once you get the best price possible, you say that the monthly payments are still too high and ask them what it would cost if you were to lease based on the negotiated price. That's it!
For the best price try talking to more than one dealership.
Go with whoever offers you the best deal.
One more thing that no one has mention, unless I missed it.
Leasing vs Buying - getting the best deal
The most popular cars tend to have the worse deals when buying, since the dealer isn't desperate to move them. The least popular a car is, the better a deal you tend you get when buying since the dealer can't wait to get rid of them
When you lease, the opposite is normally true. The most popular cars tend to have the best deals when leasing, since those cars tend to have the highest resell value. The higher the resell value, the better the lease deal will be.
Leasing vs Buying - getting the best deal
The most popular cars tend to have the worse deals when buying, since the dealer isn't desperate to move them. The least popular a car is, the better a deal you tend you get when buying since the dealer can't wait to get rid of them
When you lease, the opposite is normally true. The most popular cars tend to have the best deals when leasing, since those cars tend to have the highest resell value. The higher the resell value, the better the lease deal will be.
Makes perfect sense, but what if you do want something specific? Are you screwed? For example, I’m mildly claustrophobic and abhor black interiors. Unfortunately 8/10 mid-range cars have black interiors with a black seats, black dash, black carpets. Sometimes they’ll throw me a bone and use a gray headliner, but it’s so dark in there. Obviously I can’t tell them that up front, but is my ability to negotiate hampered?
Just please visit several dealer websites and they normally will have at least a few cars in different colors. Get the stock and vin number and ask them about that car.
If you see don't it on their site, it doesn't hurt to ask, as sometimes the website is not up to date. By asking I mean just call them.
You don't have to show up in person until you are ready to sign.
My daughter is looking into leasing a rav4. We have never leased a car before, what are the dos and donts.
As usual big RU thanks
As usual big RU thanks
Looking at cars tomorrow morning for my wife, hate looking for cars, big question is if I don’t pay cash, which I can, what is a very good interest rate on a purchase or lease (have never leased before, but wife is retired and doesn’t drive much ), also thinking of certified pre owned which we did for my college age son last year, that one I paid cash.
Sorry, I have not read every word in every post. I have been leasing cars for over 20 years for personal use and have 3 under lease right now (wife & daughter). Here are the key things important to me.
1) Whether you lease or buy the dealer is selling you the car. Actually, if you lease, they are selling it to the leasing company. Either transaction is a sale to the dealer.
2) Because of #1 you can negotiate the same way whether lease or buy. Even financing is the same. Most new car dealers for major brand names do their financing and leasing with the same company. Usually this is a subsidiary of the manufacture. The reason lease payments are less than purchase financed payments (sometimes substantially less) is that when you finance a purchase, you are financing the full negotiated price (less any down payment or trade in). When you lease a car you are only financing the negotiated price (less any down payment or trade in) less the residual value.
3) You need to choose one of two goals when thinking about your monthly payment. Obviously the term of the lease will affect the payment, but that is a separate issue. The choice you have to make is whether you are likely to want to buy the car at the end of the lease, or whether you will give it back and lease a new one. I can't really find a reason to do the first, unless you need lower payments for the term of the lease and can afford much higher ones after you buy. I lease high end cars for 3 years, then turn them in and lease a new one. Following this protocol the only thing I care about is the amount of the lease payment. As low as possible. The lowest possible lease payments result from the highest possible residual values. I don't care what the residual value is because I am not buying the car. This lets me negotiate my leases solely on monthly lease payment. The finance rate is also a fixed rate and not really negotiable. It is likely dependent on your credit score.
4) I mentioned above that the lease amount is based on the negotiated price less the residual value. This is true, but you can add things to the lease amount to reduce your out of pocket expense. Of course, this will make your lease payment higher, but it is always part of the negotiations. All of my leases are negotiated with what is called "zero drive off." This means I make no down payment and do not pay for registration, dealer prep or anything else. Sometimes I make the first lease payment, sometimes not. All of that is rolled into the lease amount. I therefore have no "investment" in the vehicle. Large cash payments when you get the vehicle are common, see all the ads for low lease payments, like " 399/month with 4999 down." Why do you want to use your cash for this transaction. Increase you lease payment by amortizing those amounts over the term of the lease and invest the cash.
5) If you are going to follow a strategy similar to mine and continue to lease one vehicle after the other, it really helps to establish a relationship with the dealer, and sometimes with specific personnel at the dealer, like the sales managers and finance manager. Because I have leased cars from them for about 18 years and have been leasing 3 cars for 6 years, I have no trouble getting their best deal on the cars I want. They know there are lots of other dealers who would love to have my business.
6) Timing. Most people know these things already, but I will mention them here, just in case. The best time to buy or lease (you are really buying from the dealer) is the last 3 days of the month. I have never heard of a dealer that does not have monthly sales goals and incentives, and sales people and managers have them too. However, there are 2 times during the year that are much better than others. One is at the end of the model year. You can tell this just from the ads for reduced prices, but the best, best time is after the new model year comes out. When the dealer is selling both last years models and this years models, the prices on last years models are the best the are ever going to be. This is really helpful if you are leasing. There is usually a small difference in a car model from one year to the next. If you are leasing for 3 years and then giving the car back, what is the difference between a 2018 and a 2019? Not much except much lower payments on the 2018. The second great time to buy or lease is at the end of the calendar year. While businesses do not have to operate on a calendar year, most do. Just like the end of month, dealers have yearly sales goals and frequently incentives based on their annual sales. The last 2 weeks in December can produce really great deals. Sometimes they still have some previous year models available, but it may be the best time to get the best price on new model year cars.
That is pretty much all I have learned in my 55+ years of buying/leasing cars and from talking with dealer owners and employees.
I believe someone mentioned above, don't be afraid to walk out the door. That is the best negotiating trick when things are not moving in your direction. But be careful, if you have a good deal and try that strategy, they are likely to just let you walk. I remember, right after I got married, my wife needed a new car. We knew pretty much what we wanted and went to a volume dealer for that brand. We found the perfect car. The negotiations did not go so well, I think the manager figured out how much my wife wanted that car. Anyway I finally said "thank you very much" and said to my wife "let's go." She was in shock, she really wanted that car. I literally got one foot out the door and the manager called me back and I got most of what I wanted. My wife was amazed and also impressed. You can use all the points you can get.
1) Whether you lease or buy the dealer is selling you the car. Actually, if you lease, they are selling it to the leasing company. Either transaction is a sale to the dealer.
2) Because of #1 you can negotiate the same way whether lease or buy. Even financing is the same. Most new car dealers for major brand names do their financing and leasing with the same company. Usually this is a subsidiary of the manufacture. The reason lease payments are less than purchase financed payments (sometimes substantially less) is that when you finance a purchase, you are financing the full negotiated price (less any down payment or trade in). When you lease a car you are only financing the negotiated price (less any down payment or trade in) less the residual value.
3) You need to choose one of two goals when thinking about your monthly payment. Obviously the term of the lease will affect the payment, but that is a separate issue. The choice you have to make is whether you are likely to want to buy the car at the end of the lease, or whether you will give it back and lease a new one. I can't really find a reason to do the first, unless you need lower payments for the term of the lease and can afford much higher ones after you buy. I lease high end cars for 3 years, then turn them in and lease a new one. Following this protocol the only thing I care about is the amount of the lease payment. As low as possible. The lowest possible lease payments result from the highest possible residual values. I don't care what the residual value is because I am not buying the car. This lets me negotiate my leases solely on monthly lease payment. The finance rate is also a fixed rate and not really negotiable. It is likely dependent on your credit score.
4) I mentioned above that the lease amount is based on the negotiated price less the residual value. This is true, but you can add things to the lease amount to reduce your out of pocket expense. Of course, this will make your lease payment higher, but it is always part of the negotiations. All of my leases are negotiated with what is called "zero drive off." This means I make no down payment and do not pay for registration, dealer prep or anything else. Sometimes I make the first lease payment, sometimes not. All of that is rolled into the lease amount. I therefore have no "investment" in the vehicle. Large cash payments when you get the vehicle are common, see all the ads for low lease payments, like " 399/month with 4999 down." Why do you want to use your cash for this transaction. Increase you lease payment by amortizing those amounts over the term of the lease and invest the cash.
5) If you are going to follow a strategy similar to mine and continue to lease one vehicle after the other, it really helps to establish a relationship with the dealer, and sometimes with specific personnel at the dealer, like the sales managers and finance manager. Because I have leased cars from them for about 18 years and have been leasing 3 cars for 6 years, I have no trouble getting their best deal on the cars I want. They know there are lots of other dealers who would love to have my business.
6) Timing. Most people know these things already, but I will mention them here, just in case. The best time to buy or lease (you are really buying from the dealer) is the last 3 days of the month. I have never heard of a dealer that does not have monthly sales goals and incentives, and sales people and managers have them too. However, there are 2 times during the year that are much better than others. One is at the end of the model year. You can tell this just from the ads for reduced prices, but the best, best time is after the new model year comes out. When the dealer is selling both last years models and this years models, the prices on last years models are the best the are ever going to be. This is really helpful if you are leasing. There is usually a small difference in a car model from one year to the next. If you are leasing for 3 years and then giving the car back, what is the difference between a 2018 and a 2019? Not much except much lower payments on the 2018. The second great time to buy or lease is at the end of the calendar year. While businesses do not have to operate on a calendar year, most do. Just like the end of month, dealers have yearly sales goals and frequently incentives based on their annual sales. The last 2 weeks in December can produce really great deals. Sometimes they still have some previous year models available, but it may be the best time to get the best price on new model year cars.
That is pretty much all I have learned in my 55+ years of buying/leasing cars and from talking with dealer owners and employees.
I believe someone mentioned above, don't be afraid to walk out the door. That is the best negotiating trick when things are not moving in your direction. But be careful, if you have a good deal and try that strategy, they are likely to just let you walk. I remember, right after I got married, my wife needed a new car. We knew pretty much what we wanted and went to a volume dealer for that brand. We found the perfect car. The negotiations did not go so well, I think the manager figured out how much my wife wanted that car. Anyway I finally said "thank you very much" and said to my wife "let's go." She was in shock, she really wanted that car. I literally got one foot out the door and the manager called me back and I got most of what I wanted. My wife was amazed and also impressed. You can use all the points you can get.
I was wondering if anyone would mention your #3. Because I plan on turning in my lease after 3 years, nothing matters but monthly payment. I tell them the payment I can afford and magically, they get there for me. I've leased from the same guy each of our last 4 cars, so they treat me right.
It's called back loading the lease, which if you 100% plan on returning it for a new lease it is a good deal. If you plan to buy it, you will screw yourself, so don't do that if you plan to buy at the end of the lease.
I've never put a dollar down. Sure, it would help, but I refuse. First payment is all I give them up front.
I’ve never leased a car before. I’ve always bought. But considering most of our driving is from our house to the ferry about a mile away, I figured leasing might be the way to go. So, my question is how do I go about getting a deal with a lease? I was thinking about negotiating terms on 10k miles/yr then asking for them to honor that deal on 15k. But honestly I don’t know much about what flexibility there is. Any advice is appreciated. FWIW, I’m looking to lease a Volvo XC90 and also maybe a Jetta.
a lot of variables to consider, not just how many miles you drive..
I always bought cars as I drive 25K miles a year, also wanted to give my kids cars that I owned when they got at 125K miles..
Last car I leased for my wife because the interest on a end of year model was zero percent for 36 months with a lease and she drives <10K a year..plus the car retail was over 50k..
https://www.edmunds.com/car-leasing/should-you-lease-or-buy-your-car.html
I always bought cars as I drive 25K miles a year, also wanted to give my kids cars that I owned when they got at 125K miles..
Last car I leased for my wife because the interest on a end of year model was zero percent for 36 months with a lease and she drives <10K a year..plus the car retail was over 50k..
https://www.edmunds.com/car-leasing/should-you-lease-or-buy-your-car.html
Go into dealership as if you’re buying, negotiate the sale price. Agree on the sale price, then mention you want to lease.
Turn in your lease early for a new car if running close to mileage issues.
So long as you go to same dealership or lease from same manufacturer, shouldn’t have to cost anything to do this.
Thanks. But I put an ungodly amount of miles per month. Way more than most here. I clock twice the amount most leases give in one year.
And I just assumed that leasing never made sense for people like me. Since I clock up so many miles in the first year and now I am paying for the "extra miles" which rack up alot more money.
This is what I heard...never done any research. So I just bought cars.
Yes, if you’re in the situation you described, buy, because leasing wouldn’t make sense for you.
Thanks. That was my assumption. But I do think I should negotiate. My family just walks in and sales people love us. THe last BMW showroom guy even told us..."wow you guys dont negotiate anything...a dream".
I am sure we get tagged alot of finance charges and stuff.
I own a Volvo XC90 and very happy with it. Previously have an Acura MDX which was also excellent. Always buy because I don't need to drive new every 3 years. If you intend to buy post lease, just buy it upfront, negotiate a good deal and take care of your car.
Hey,
Wondering all you great negotiators can give me pointers on how to go about getting a great lease deal, I'm going to get a 2019 Ford Edge as my choice? Any pointers on how to get the best deal?
Thanks
Wondering all you great negotiators can give me pointers on how to go about getting a great lease deal, I'm going to get a 2019 Ford Edge as my choice? Any pointers on how to get the best deal?
Thanks