What Everyone Needs to Know Before Leasing a Car

Source: Lexus

For a lot of people, leases are a bit of a mystery. Buying a car outright is at least conceptually straightforward, but that’s not always the case when leasing. In the beginning, it can look a lot more convoluted and complicated. With a little bit of understanding though, they become a lot less complicated, and you can figure out more easily if you’re getting a new deal or not.

As Edmunds points out, residual value is the most important factor in how much a car costs to lease. You pay for all the depreciation on the vehicle over the length of the lease, so a car that retains more of its value in the first three years will generally be less expensive to lease. For example, a car that is projected to depreciate by $20,000 in its first three years will be more expensive to lease than a car that’s projected to only depreciate by $15,000 in the same period of time.

There are, of course, taxes, fees, and interest that you have to pay on a lease, so your lease payment won’t add up exactly, but you can get a decent idea of what your monthly lease payment will be by dividing the total depreciation by 36.

That also means that when you’re looking to lease a car, you want to go for one that holds its value better than the competition. Doing so will allow you to either save money or drive more car for the same amount of money. It might not make sense to the casual observer, but a difference in residual value is why you can sometimes lease a Lexus for less than a Toyota. Even though the Lexus costs more, it depreciates less.

Once you’ve found a car with great residual value, you’re about 80% of the way to a great lease deal. The next factor, though, is interest. In leasing, the interest you pay will probably be called either the “lease factor” or the “money factor,” but those terms really just mean “interest.”

BMW 528i
Source: BMW

Simply knowing that interest is part of the lease deal gives shoppers an advantage a lot of people don’t have. It will also allow you to compare rates between dealerships and find the one offering the best one. It will take a little more effort than simply accepting the salesperson’s initial offer, but over the next three years, it will be worth the time you spent.

The taxes you have to pay on your lease are pretty much set in stone, but the other fees are all negotiable. Not every dealership is willing to haggle, but as it is with most things in life, it never hurts to ask. Security deposits, acquisition fees, and disposition fees all vary between dealers and can potentially either be reduced or waived. With fees often well over $500 now, there’s usually a little bit of room to negotiate.

Finally, you should also look at customer retention rates. Those figures don’t necessarily have an impact on how much you spend, but they are pretty likely to tell you how happy you’ll be with your lease. Honda, Acura, Infiniti, and Nissan all have notably low retention rates, which should give people pause for thought before going through with a lease. Leasing from BMW, on the other hand, is much more likely to lead to a satisfying experience.

One factor that can lead to a higher customer retention rate is the ability to transfer the lease to someone else if you want to get out of the lease before the term ends. Some companies have much more favorable rules than others in that sort of situation, and picking the right company can mean the difference between a smooth transfer and a nightmare.

Once you’ve found a car with a high residual value, low interest, minimal fees, and a strong retention rate, all that’s left to do is give it a thorough test drive, sign the paperwork, and drive home in your new car. Enjoy it for the next three years, take care of it, and hopefully you’ll find that the leasing experience can be quite enjoyable.

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