Five Steps to Getting the Best Deal on a Car Lease

If you’ve ever negotiated what you think was a great deal on a car lease, you might want to think again.

Perhaps you whittled down the retail price that your lease was based on — something that many consumers (including busy physicians) fail to do. But even if you did this, the dealer still may have made thousands on marked-up financing charges.

Awareness of this practice and the metrics involved is powerful ammunition for a highly effective price-cutting strategy. You can save hundreds of dollars per month on a luxury car lease by following these five steps:

1. Do your homework. Determine area dealers’ asking prices by using the "build” feature on the manufacturer’s website. Look closely at any pending manufacturers’ discounts or rebates, which cost the dealer nothing. These discounts are sometimes buried deep in manufacturers’ sites because many people are willing to pay full price. Also, find out what the car you want is going for in your area by checking consumer auto sites like Edumunds.com and Truecar.com. This will give you some baseline data for your negotiations.
2. Go to the dealer and negotiate the sale price downward, just as you would when buying a car. Start with manufacturers’ discounts, then seek an additional discount out of the dealer’s end by telling them you’ll give them a few thousand less. Always offer a specific number, rather than asking them what they can do for you. Dealers are often willing to go way down because of the money they’re planning to make from you if, like most consumers, you fail to take the next step.
3. Discover the money factor. Also called the buy rate, the money factor determines the interest rate you’ll pay as part of your lease rate — a big part of your monthly payment. The money factor is usually in decimal form, often with four or five decimal places. Dealers use it to calculate the interest rate to be applied to the negotiated retail price — the annual percentage rate (APR).

To increase interest charges for lessees above what they pay lenders to finance the car, dealers simply jack up the money factor. This way, they can cut the sale price to the bone and still make a killing — while buyers mistakenly believe they’re getting a great deal.

How can you learn the money factor? Simply ask the dealer. This request typically isn’t regarded as unreasonable, and few people ask because they aren’t aware of it. Once you get the number (often abbreviated on lease documents as MF), just multiply it times 2,400 — an industry financing constant — to get the APR. For example, if the money factor is .00150, the equation is: .00150 x 2,400 = 3.6 percent. If the result isn’t equal to or less than prevailing APRs for car purchases, you’ll know they’re marking up the money factor — and that there’s room to talk it down.

Getting the money factor, instead of just negotiating the APR, is a way of communicating to dealers that you know this is how they quantify the markup on financing. Thus, it has intimidation value.

But if you want to cut to the chase, you can just ask the dealer “if they’ll give you the lease at the buy rate,” says Oren Weintraub, owner of AuthorityAuto, a service that negotiates car leases and purchases for consumers at dealers nationwide. “If they won’t give you this rate, you can create leverage by letting them know another dealer offered it to you.”

4. If the dealer won’t cooperate, move on to the next one. You may be able to get tips on which dealers to visit from web postings on chat sites where people discuss deals on leases in your area. When you read about a dealer that gave someone a rock-bottom lease rate, that’s because the buyer negotiated both a low sale price and a low money factor.

On these sites, you’ll see chat about residual value — the price the lessee agrees in the lease contract to pay for the car at the end of the lease if they decide to buy it. You want to find cars with high post-lease residual value —preferably, north of 55 percent — because this can lower your lease rate. Cars with high residual values tend to be models that retain their value well. As a rule, luxury cars tend to retain their value better proportionately. You’re more likely to find leases on cars with higher residual values toward the end of the model year. (It’s rarely a good idea to buy a car you’ve leased, as your goals conflict. If you want to buy a car, it’s usually better to buy it without leasing it first.)

5. Get a handle on all additional charges before agreeing to a deal. These include tax, destination charges, title, acquisition fees and surrender fees. Dealers often charge high destination fees on luxury models. Like everything else, these charges are negotiable. Also before signing, make sure that all optional equipment is specified in the lease, including the brand and model of tires. Some dealers deliver cars with tires inferior to those on test-drive models.

By taking these steps, you’ll show dealers you’re a savvy consumer and wear down their resistance. After all, they make their best deals with uninformed consumers.

David Robinson, a Certified Financial Planner, is founder/CEO of RTS Private Wealth Management, an SEC-registered firm in Phoenix that provides fiduciary services to help clients achieve their financial goals. His practice focuses on helping wealthy individuals with custom financial plans, using a holistic approach to grow/protect wealth, manage taxes, identify insurance solutions, prepare for retirement and manage estate plans.