How to negotiate a car lease

Leasing a car can be an attractive alternative to buying a car, letting you ride around in a new vehicle for a few years without the commitment of ownership. Buyers and lessees have at least one thing in common though — everyone wants the best deal possible. Knowing how to negotiate a car lease can be a handy skill to have, especially if you understand some leasing terms.

Negotiating a car lease: the key terms

In order to know where you can potentially bring the cost of a lease down, it helps to first understand what that final cost is made up of. Understanding these terms may empower you to negotiate more effectively and confidently:

Capitalized cost

The capitalized cost, sometimes referred to as the “cap” cost, is essentially the agreed-upon value of the vehicle which can include things like taxes, title fees, license fees and other associated costs. A vehicle trade-in or down payment on your lease are often referred to as “cap cost reductions” or adjustments.

Acquisition fee

Dealers typically assess this fee to cover the cost of doing all the paperwork required to create a lease agreement.

Residual value

Residual value is the lessor’s expected value of the car at the end of the lease, accounting for expected depreciation.

Rent charge

The rent charge is a cost you pay the leasing company in addition to depreciation to be able to lease the car. This charge is typically part of your monthly payments.

Disposition fee

A disposition fee is a charge you may incur at the end of your lease that covers the leasing company’s cost for closing out your lease.

Buyout amount

The buyout amount or purchase price is typically provided on lease agreements that have a purchase option. If you decide to purchase the vehicle at the end of the lease term, or sooner, the buyout amount is what you’d pay.

Mileage allowance

Most leases typically have limits on the miles you can drive per year. This varies based on your lease agreement, but typically ranges somewhere between 10,000 and 15,000 miles annually.

Can you negotiate a car lease?

Now that you have a better understanding of the terms and costs associated with leasing a car, you might have noticed there are a few areas where you may be able to negotiate. Bear in mind, however, that every lessor has their own evaluation of costs and fees, and some may be more amenable to negotiating these costs than others. With that in mind, let’s look at what you might be able to talk down:

Capitalized cost

When trying to negotiate a lease to get a lower monthly car payment, it may help to focus on the cap cost since this is going to be a major factor in your monthly payment. You could do some market research on the vehicle you’re considering so you might establish a case for lowering the price based on fair market value.

Disposition fee

While there’s no guarantee you’ll be able to negotiate this fee, it may be beneficial to ask the lessor about it. By trying to negotiate the lease disposition fee before the start of your lease agreement instead of toward the end of it, both parties are clear on what will happen from the outset. If you decide to lease or buy another vehicle of the same brand at the end of your lease, the fee may be waived automatically. If your lease includes a purchase option and you buy the vehicle, this fee typically doesn’t apply.

Buyout amount

If you know you’ll be exercising your lease agreement’s purchase option (if it has one), you’ll want to try to negotiate the buyout amount up front since it’s part of the lease agreement.

What’s not negotiable?

The acquisition fee, residual value and disposition fee typically have little room for negotiation, if any. The acquisition fee, for instance, is an administrative fee charged by the dealer to prepare the paperwork required to create a lease agreement. Residual value is based on depreciation and is calculated using industry data and set formulas, leaving little room for change. Rent charges are based on the lessor’s own calculations and business model, and may be affected by your own finances and credit score.

Car lease negotiation tips

When negotiating a car lease, it helps to be well-informed and well-prepared. Here are a few tips that might help you with your next car lease negotiation:

Knowledge is priceless

Doing your research has the potential to really pay off in the car lease negotiation process. As you learned earlier, knowing the fair market value of the car you’re looking at could help you when trying to negotiate the cap cost.

It also helps to do your research when it comes to what other dealerships might be offering for a similar vehicle, as well as what the general incentives and deals landscape looks like. Getting quotes from multiple dealers may give you a little extra leverage in negotiations.

Focus on cap cost to lower monthly payments

Some customers make the mistake of getting hung up on monthly payment size, which can be reduced in ways that may not serve your best interest. Increasing the term length of your lease could lower your monthly payments but could potentially result in you paying more in the long run. If you have a vehicle to trade in, this could provide you with some leverage to reduce the cap cost and have a significant impact on the size of your monthly payments.

Use timing and patience to your advantage

Appearing to be in a hurry to close the deal may give the dealer an advantage in negotiations. It typically helps to be patient and take your time, especially if you’re near the end of a month or sales quarter. This is when dealers traditionally have more pressure to meet quotas, so it may be a great time to shop.

Be polite and professional

The saying goes that you catch more flies with honey, and that may apply here as well. People tend to be more helpful to someone they like. A kind word and calm attitude can potentially go a long way in a negotiation.

Carefully review your lease agreement

Before signing your lease agreement, it helps to read through it carefully and make sure everything looks accurate based on the terms you negotiated with the dealer. If you come across anything you have questions or concerns about, it’s best to have the dealer clarify these for you before you formalize your agreement.

In summary

Learning how to negotiate a car lease can be a potentially valuable skill that helps you secure a better deal and save money next time you lease a car. By understanding the costs associated with a lease, you’ll know how to speak to the dealer knowledgeably. You’ll also know which costs typically can and can’t be negotiated. With the right preparation and mindset, you may be well on your way to a more favorable lease agreement on your next car.