For all of you who think leasing a car is the worst financial decision ever and want to say “If you can’t afford it, you shouldn’t get it!”, stop reading now, hop on your high-horse and gallop into the comments. Now for the rest of you, here is what you really need to know about leasing a car.
A while back, I wrote this post on getting a good lease deal. While there is some helpful information in there, but every week I still get questions from readers who are confused about the process. I would like to revisit this topic and explain how getting a great lease doesn’t have to be complicated.
You should not lease a car if...
You drive a whole lot: Depending on the manufacturer, a lease will typically be between 10k and 20k miles per year. If you drive significantly more miles than the lease allows for, you could be hit with expensive penalties.
You want to modify your car: One way to look at a lease is essentially “renting” a car for a period of time. This “rent” will be typically cheaper than a purchase, but you retain no ownership. If you are the type that likes to customize your ride, it would be foolish to pour money into a car that you have to give back in a few years.
You drive it until it dies: Some people hate having a car payment. They can’t wait until that bank-note is clear and the title is in their hands. These folks will drive a car for many years after it is paid off with the satisfaction that a portion of their monthly budget is free and clear.
But if leasing is right for you, here is how to shop for one...
Do your homework.
Once you figure out the type of car or truck you want find out who has competitive lease incentives. Some brands offer great lease deals, some don’t. In my experience Volkswagen and Audi aren’t as competitive as other brands with vehicles of the same MSRP. On the other hand, Honda and BMW tend to offer great lease values. This mostly has to do with the car’s residual or “resale” value.
Ignore the numbers on the websites.
Okay, so maybe don’t “ignore” them, but just know that the advertised lease “deals” on the manufacturer websites are more like “estimates” and may not reflect what a specific vehicle will lease for.
Set your terms.
There are all kinds of details that determine lease payments like hold-back, discounts, and money factor. All are worthwhile to investigate, but if you want to keep in simple you need to worry about three things: down-payment, miles, and time.
- How much do you want to put down? Some people will tell you that you should never put a down-payment on a lease. The reason is if your car gets totaled that money is gone. That is a valid concern, but often a down-payment is necessary to get the monthly payments within your budget for the car you want.
- How many miles per year? Again it is really important that you estimate this one correctly. If you take a 10k mile per year lease and end up driving 15k per year, you could face hundreds or even thousands of dollars in penalties.
- How long to you want to lease? Every manufacturer has their “sweet spot” when it comes to lease deals. Some brands like Subaru lease for 48 months, while a Honda lease is typically 36 months. Luxury car companies like are more flexible and will allow you to lease for as little as 24 months or as long as 48.
Once you have set the factors of down-payment, miles and time, be consistent when you start shopping. Almost any dealer can hit a monthly payment target by manipulating the terms on the other side of the equation. That is why it is crucial that you communicate these terms when contacting dealers and have them send quotes back to you describing the same terms.
Gather quotes and compare.
Like anything you buy the key is to shop around. Call dealerships, tell them your terms and have them send you quotes on what the monthly payment would be. Make sure the email is explicit in the terms you described and has a specific vehicle attached to that offer. Sometimes they will give you a “quote” and once you get to the dealer, that “won’t apply” to the car you want.
Look at the monthly payment compared to the MSRP to determine the best value. For example, if you are going to put $2,000 down on a Mazda3 hatchback, for a 36 month lease, with 10,000 miles a year. Dealer A sends you a monthly payment of $228/mo for a $24,000 car, but Dealer B sends you a payment of $235/mo for a 26,500 car. Dealer B’s payment is higher but it is the better deal.
Now if you only want the options in the $24,000 car, you will want Dealer C to send you a payment of less than $235/mo. If they do, you tell Dealer A that you have a lower offer and they would have to beat it in order to get your business. Sometimes they will, sometimes they won’t, usually they will just match Dealer C’s price. If that is the case than you can just go with whatever dealer is most convenient for you.
As I explained in my buying/leasing a Honda in New York saga, gathering these quotes is not always easy, but if you stay firm and stay consistent you can be cruising around in a nice brand new car, with a low monthly payment. This will allow you to thumb your nose at all the plebes driving in their Craigslist specials.
If you have a question, a tip, or something you would like to to share about car-buying, drop me a line at AutomatchConsulting@gmail.com and be sure to include your Kinja handle.