How to Get the Best Car Lease

Automaker leases are sometimes subsidized, or “subvented.” The automaker can take money off the top, with an extra rebate just for lease deals, or it can raise the residual or both. Either way, that reduces the depreciation that the lease must finance. Occasionally, a subvented lease can bring a below-market money factor, but that’s uncommon. You can unearth these special lease deals by checking the websites of automakers and local dealers.

The cheapest deals are subsidized leases offered by an automaker’s finance arm—Ford Motor Credit, Ally (which handles financing for GM and Chrysler products), Honda Finance, and so on. Many automakers also factor in tax credits for EVs to lower lease prices.

Be aware, though, that a lot of these leases are inexpensive because the automaker is trying to clear the decks of slow-selling cars. So that sweetheart deal might not be for a car you actually want. And the special deals may be available only to customers with top credit scores. But with lending standards looser than they were a couple of years ago, don’t assume you won’t qualify.  

Buying and leasing have one thing in common: You should first negotiate the price of the vehicle. Only after you have a firm price should you discuss leasing. After all, it’s a form of financing.

Whether you’re comparing leases or evaluating a single offer, pay particular attention to the lease interest rate, aka the “money factor.” This is a small decimal fraction, often written out to five places, such as .00166.

To convert a money factor to its equivalent percentage rate, multiply it by 2,400. Thus, a money factor of .00166 multiplied by 2,400 is the same as a 4 percent annual percentage rate. To go the other way, divide by 2,400. An 8 percent annual percentage rate would convert to a money factor of .00333.

Lease rates are often lower than an equivalent loan’s interest rates. Lease contracts are also less risky for a finance company. Because the finance company legally owns the car, it’s easier to repossess it if necessary.

A number of automakers offer a one-payment lease. In exchange for paying the full amount up front, you’re charged a lower money factor than if you made monthly payments. This could translate into big savings, but it requires you to put up a substantial amount of money at one time.

If the lease rate you’re being offered is more expensive than a loan rate you could get, try another leasing company or a different dealer. Keep in mind that lease rates, like those for loans, depend on your credit score. But different lenders have different standards. And remember that you can negotiate the money factor.

You may be able to arrange a lease yourself or compare lease offers through online sources such as TrueCar.com and Credit Union Leasing of America (cula.com).

The mileage limit, down payment, and purchase-option price can also be negotiated. Remember that, just as with a loan, the more you put down, the less your finance charges will be.

Unless it’s included with the lease, buy Guaranteed Auto Protection (GAP) insurance to protect yourself in case the vehicle is stolen or totaled in a crash.

Finally, if you have a trade-in vehicle, make sure that it’s deducted from the leased car’s capitalized cost

Many people assume that when they see a monthly payment printed in a leasing ad, the figure is etched in stone. But that monthly figure may be based on the manufacturer’s suggested retail price, which can be negotiated downward just as if you were buying the vehicle. Here’s what else to watch out for:

What’s included? Some of those very cheap lease offers apply to only a handful of cars on hand, which may not have desirable features.

Time to act: A careful shopper needs time to visit dealers and weigh competing offers. But to qualify for the attractive terms in some ads, the customer has just one day to sign the lease and must take delivery of the vehicle within three days after that. Don’t let yourself be rushed.

Mileage overage penalty: Some lease ads base their offers on an allowance of 10,000 miles—or even less. Of course, if you exceed that limit, you’ll have to pay an extra charge for each additional mile.

Regular maintenance: Check to see what scheduled maintenance is included, such as oil and filter changes, and what you may have to pay for out of pocket. You’re responsible for having all maintenance performed during the lease term.

The turn-in process: Even before you sign your lease contract, you should be thinking about the end of the lease. The contract will spell out conditions you’ll be expected to meet when it comes time to return the vehicle, so now is the time to decide whether you can live with those terms.

Your budget: Usually, if you terminate the lease early, the penalty can pretty much equal the rest of the lease payments. So before you sign, make sure the payments will fit into your monthly budget.

Choose the right mileage. As we said above, if you exceed the lease’s mileage limitation, you could end up paying as much as 50 cents for each additional mile you drive. If you think you may need additional miles, you’re better off purchasing them at a discount before you take possession of the vehicle.

Sometimes you can do that during the lease, but ask about it first. The savings can be significant because most companies will let you boost your mileage limits at a cost of about 10 to 15 cents per mile. Review the lease agreement to see whether you can spend the money on additional, unused miles returned at the end. But you won’t get a refund if you return the car with fewer miles than the standard allotment.

Last, keep in mind that the more miles you drive, the greater the potential for more wear and tear. You’ll be charged for this at lease-end. So find out what the dealer considers “excessive” wear and tear before you sign the lease.

Make sure it’s a closed-end lease. Most consumer leases are closed-end leases, meaning you can walk away at the end without having to pay the finance company anything if the vehicle loses more than its projected depreciation and disposition fee.

Examine the purchase option. The standard lease-end purchase option lets you buy the vehicle for its stated residual value when the lease is over. Check whether there are any extra fees associated with doing that. If you like the vehicle and decide you want to buy it, make sure that the stated price is a good value. Sometimes the carmaker or leasing company offers a lower interest rate for the loan and/or a cheaper warranty/maintenance program extension for lease-end buyers.

If you let your guard down, a satisfactory leasing experience can quickly unravel—expensively—at lease-end. Because you’re giving up your wheels, the dealer knows that you’ll probably need to get into another car. They might try to strengthen their hand by telling you that you’ll be charged for excess wear and tear, then offer to forgive those charges if you agree to lease a new vehicle.

If you drove too many or too few miles, you can buy the vehicle at the buyout price. Then you can determine if you want to keep the car or resell it. To decide, you need an accurate estimate of what the vehicle is now worth.

If you drove too few miles and thus paid too much depreciation, buying the vehicle is a way of recovering that value. If you drove too many miles, buying the vehicle may be better than paying the over-mileage penalty. The same is true if you have excess wear and tear.

If you had a subvented lease with an artificially high residual value, you’d probably be better off walking away. The purchase price may very well be higher than the vehicle’s worth, but you can also try bargaining down the price.

Your lease contract likely includes a disposition fee, which is money the dealer receives to prepare the car for resale. If you keep your vehicle or lease another model from the dealer, ask to have the fee waived.

Turn it in clean. Before you bring the car back, make sure it looks as sharp as possible, cleaned and vacuumed.

Have an independent garage make necessary repairs. You’re under no obligation to have the dealer that originally leased you the car do any of the needed end-of-lease repairs. At least one or two months before your lease expires, have the vehicle inspected. If repairs are needed, collect bids from mechanics or body shops you trust to determine the least expensive way to make them.

Buy your own tires. If you need to replace the tires, you can do it less expensively with a bit of shopping rather than just going through the dealer. Expect to pay for all four. Most leases specify that tires must match; mismatched tires are also a safety concern.

Be aware of “loyalty” leases. It’s easy—and lucrative—for dealers to persuade existing lease customers to simply roll into a new lease when their contract expires. But you owe it to yourself to shop as carefully for your new lease as you did for the original one. If you decide to lease anew from your original dealer, make sure that any forgiven end-of-lease charges aren’t simply “wrapped” into the next lease you sign.

Don’t forget your security deposit. Many leasing companies require customers to ante up the equivalent of one or two months’ payment as a security deposit when the initial lease is signed. If you have a good credit history, ask the dealer to waive that fee. If you do have to pay it, though, don’t forget to ask for your deposit back when you return the vehicle.

Determine an early exit strategy. If you must terminate early, one option is to work through a service such as LeaseTrader.com or Swapalease.com. For a fee, they will help find someone to take over your lease. Many lease companies charge a transfer fee or even prohibit lease transfer, so check first.