starbucks

Wondering if those of you with leasing experience could share your good advice with a newbie? I've never leased but would like to lease an 8.

I found leasingguide.com helpful and posts on this board, but still feel like I'm going to get ripped off with special "fees" and other dealer tricks.

The basics seem to be:

1. Negotiate the sales price
2. Residual
3. Interest rate (money factor), and
4. Amount of normal wear and tear on the car, including minor damage such as dings ($1500?) at the end of the lease

Are there other legitimate fees and costs? I've read on this board that there are legitimate fees for writing/originating the lease.

A friend of mine, who's sworn off leasing, said she had to pay the difference between the residual and blue book at the end of her lease on an Mazda MPV. Is this something normal, or does it fall under "you gotta read the agreement before you sign anything?"

eccles

If you go through a third-party leasing company, you will usually wind up paying some sort of fee to them for brokering the deal. This is uaually factored into the Capitalized Cost.

It sounds like your friend got herself an "open-ended" lease - the type more usually obtained by businesses. A regular consumer "closed-ended" lease means the leasing company absorbs any deficit if the vehicle has not held its value as well as expected. See leasetips.com for more information.

mngpao

You definitely want to negotiate the sales price - because the leasing company (or bank) actually buys the car (but you end up paying for part of it).

If the bank thinks the car will depreciate $10k during the term of the lease, the contract will show a residual value of $20k (the sales price minus $10k). The residual is what the bank thinks the car will be worth at the end of the lease. When you lease a car, you are really paying the depreciation (plus tax and LOTS of interest). If you come up with a down payment, it's as if you've prepaid some of the depreciation and therefore will have a smaller monthly payment.

Let's use a three year lease as an example: if you negotiate a sales price of $30k and the bank estimates that the residual after three years will be $20k, your monthly lease amount will have to include enough to pay off the $10k depreciation over 36 months. 10k divided by 36 months is about $278 each month. That is only the base monthly amount.

BUT... since the leasing company had to put up $30k to buy the car for you, they actually want to earn interest on that money. Also, (and here's what a lot of leases do) they will also charge interest on either the $10k (that you are repaying) or worse, the $20 residual value.

Wait a second! That sounds like they're charging you interest on the $30k sales price PLUS interest on the 10 or 20k. YUP - you got it right. Many leases would calculate the interest on either $40k or $50k - but they won't call it interest. It's called "the money factor". Because it's usually a really low figure (like 0.04 or 0.23 or 1.23 or 2.10), some salesmen mislead the buyer by saying it's the interest rate.

Anyway, after calculating the interest, they then divide that amount by the number of months in the lease and add that to the $278 per month. Because the state also wants a share of the transaction, sales tax is then also added to the monthly amount.

If the lease was for only two years, and the depreciation (sales price minus residual) is still 10K, the base monthly amount would be $416 ($10k divided by 24 months). To that, they would also add tax and interest. The money factor on a two year lease may differ from that on a three year lease.

If, at the end of the lease, you decide to buy the car, you would pay the amount stated as the residual value (plus possibly a conversion fee). If you don't buy the car, the contract may call for a termination fee. The bank usually sets those fees and the dealer may not be able to change them - BUT... you should find out how much they are and take that into consideration when you negotiate the sales price.

Your friend must have had an "open ended lease" which is why she had to pay extra at the end of the lease.

Sometimes, an "open ended lease" works the other way. If the Blue Book was higher than the residual, she could have gotten some money back. Why? - because she could "buy" the car at the residual value and sell it (possibly to the dealer) at the blue book price.

You probably want a "closed end lease" (sometimes called a "walk away lease") where you turn in the car at the end of the lease and just "walk away" owing nothing (except for excess mileage and, if included in the contract, a termination or turn-over fee).

And, speaking of mileage, most leases allow you up to 12k or 15k miles per year - charging you extra if you exceed that amount. If you think you will be driving more than the stated contract amount, there are a couple of ways to get those limits changed. You can ask if another plan or leasing company has higher limits or you can pre-purchase additional miles at a per mile rate lower than what you would have had to pay at the end of the lease.

If you know up front you will NOT want to buy the car, try to get a lease that has the highest residual value. If our above example $30k car had a residual value of $25k, your monthly payment would be based on only $5k for 36 months (or about $139 per month plus tax and interest).

If you know you will buy the car at the end of the lease, you should buy it up front instead of leasing it. If you insist on leasing it before you buy, you should find a lease that gives you the LOWEST residual value. Remember, if you buy the car at the end of the lease, it's the residual value that you will then pay.

Many dealers want to keep you as a customer. The good dealers will waive excess mileage fees and termination fees and security fees, etc if, at the end of the lease, you lease another car from them. Many people lease a new car every other year (or every third year) because they've latched up with a good dealer that "treats them right".

You may have to do some calcs to determine the lease configuration that is best for you.

Lastly (whew) you don't want to lease a car for longer than the warranty period.

Good luck.

mngpao

A general note about lease fees. DON'T PAY THEM.

A good lease with a good company may possibly include a small lease termination fee - no other fees.

The termination fee was $240 on a $41k Infinity and $160 on a $21k Ford. When negotiating with the Ford dealer, I stated that I would not pay any fees. The dealer said that the bank gets the fee which has to be paid at the time the car is turned in at the end of the lease. Therefore, the $160 must be included in the contract. To resolve the issue, the dealer gave me a check for $160.

If you are leasing for the first time, or your credit is other than perfect, or you don't have a down payment, or (insert a dozen other reasons here), you may be charged a security fee or security deposit. You may not be able to avoid that if the reason for the fee (i.e. no down payment) is justified.

Regardless of whether or not there are fees - do your homework. Use Edmonds.com or KBB.com to find the dealer's cost. Find out up front if there are fees - even before you start to negotiate a sales price. If the dealer won't (or can't) waive the fees, subtract them from the price you would be willing to pay for the vehicle.

In the case of a "deposit" type fee, ask about the conditions under which you get the depost back. For example: a valid security deposit will be returned to you at the end of the lease if you make all your payments as agreed and there is no abnormal wear or tear on the car.

starbucks

Thanks for the info you two.

I feel more comfortable going out to negotiate a lease after reading your posts. The termination fee was something that I've heard and seen related to leases and wondered what that was all about.

It sounds like my friend got reamed with an open ended lease. It was back in the early mid-90's before I knew her, but I get the feeling that they really put one on over on her. I'm not sure the MPV's had the greatest resale values. She had to pay an extra two thousand.

DViOuS

also, check out www.carbuyingtips.com, they have a section on leasing. They have a spreadsheet there for free which calculates the monthly rate after you input the data for your lease, this way you know what you should ask for when negotiating.

Also a "walk away lease" you can also get money back at the end if the cars value is more than market value by buying the car and selling it rather than returning the car (tho there is a ~$250 buy out fee).