My Experience and Advice for Leasing
The only way to get a good deal on a lease is to understand how a lease works and to shop around for the best prices. So I recently leased my 2015 BMW 528i with a $58,750.00 MSRP for only $454.13 per month (excluding sales tax). I thought I would share my steps and methods for negotiating a lease deal.
Understand the basics of leasing, the cost saving strategies, and why it is important to put ZERO money down.
- How is a lease calculated? A vehicle loses value every day that you drive it. A lease payment is basically the loss of value of the vehicle spread over the entire lease term plus interest and taxes. A simple example is a car with a $55,000.00 MSRP, purchased for $50,000.00, and depreciates to $39,000.00 in 3 years. The depreciation value is $11,000.00 and when spread over 3 years with a 3.00% interest rate and 5.00% sales tax, the monthly payment is $437.06. This is only intended as a simple example; a true calculation requires more data.
- What are Multiple Security Deposits (MSD)? MSDs are an optional security deposit program that will reduce your interest rate a.k.a. money factor. The logic is simple. If the leasing company has a security deposit from you, then your lease is lower risk and they will reduce your interest rate. The more security deposits, the more the interest will be reduced. Also, MSDs are fully refundable and the end of the lease. You can view this as a guaranteed high yield investment. In my opinion, if you have cash on hand, always put your money down as an MSD. Special Note: Not all car manufacturers have MSD programs. Check with the leasing manager at the dealership
- Why make ZERO down payments? Because if you wreck the vehicle or it is stolen (a total loss), then you lose your entire down payment. Also, you have to pay sales tax upfront for the down payment instead of rolling it into the monthly lease payment. Put your money down as a MSD instead because it is refundable and will save you money on interest.
Start looking for cars that you like and make a list of them. In your list, include all the optional equipment that you want (i.e. GPS, Heated Seats, etc). Once you know which cars you want, go to your local Dealer's websites and start browsing through their new car inventory for cars that meet your criteria. Print out the ones that you truly want.
Enter the vehicle's information into Edmunds.com or TrueCar.com for an exact price quote. Make sure to enter the information exactly with all the additional equipment (i.e. GPS, Heated Seats, etc) so that you can get accurate invoice pricing for the car. Sign-up for Edmunds.com or TrueCar.com request a quote from local dealers. You will get several calls from the local dealerships wanting your business. Now that you know what vehicle you want, the recommended price, and the invoice price, start negotiations by phone because it is faster and easier. I strongly suggest knowing the dealer stock number or vin number of the car when negotiating by phone because it will make it easier for the salesperson to look it up (this info can be found on the print-out in step 2).
In the negotiation process, they will usually match the recommended price on Edmunds.com or TrueCar.com but you can always attempt to go lower especially when multiple dealers are competing for your business. Also, look for rebates and incentives through Edmunds.com or TrueCar.com. Most of the time, the rebates and incentives are already factored into the recommended price but always double check. If you or a family member is in the US Military, then you may qualify for a USAA membership. As an USAA member, you will receive additional rebates and cash incentives that you can stack on top of your negotiated price.
During phone negotiations, make sure to get enough information to complete our lease calculator. You should have them calculate the lease out for you and after the salesperson gives you the price, make sure to ask the salesperson for the following information so you can check their math:
- The MSRP of the vehicle.
- The negotiated selling price.
- The lease term. How many months is the lease program.
- The money factor a.k.a. interest rate.
- The residual value of the vehicle. This is usually represented in a percentage format.
- Do they have a Multiple Security Deposit (MSD) program? If yes, how many MSD can you make and what is the money factor reduction for each MSD.
- What is the lease acquisition fee (sometimes also called a bank fee or initiation fee)?
- What is the document fee?
- The rest of the fees are typically DMV fees and they are standardized. There is no need to find this out at this time. You just want to start figuring lease costs.
Once you have gotten multiple phone quotes and made all your calculations. You can choose the best deal and complete your lease. I find it very useful to get multiple quotes because the dealers will fight each other for your business. The fundamental of business is supply and demand. There is an abundant supply of cars out there, so unless it is a very hot car, you can find some great deals. Happy negotiating =).