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How to Get a Great Deal on a Lease

By David Muhlbaum
Kiplinger's Personal Finance

Leasing accounted for nearly one in three new-car transactions in 2016. With a lease, you pay for a car's depreciation only over the term of the lease, which means payments are lower than if you financed the entire cost of the car. Plus, with most lease terms, you're always under warranty. If you tend to keep your car until it quits, leasing isn't for you. But if you finance new cars and trade them in often enough that you always have a new-car payment, a lease could be a good deal. Here are some terms you should know.

Capitalized cost. In the leasing world, the price of the vehicle is called the capitalized cost. You should haggle over that cost just as you would over the sticker price of a car you're buying. The capital cost reduction is basically the down payment. The more you put down, the lower your payments – but you should put down as little as you can. One of the benefits of leasing is that you are tying up as little money as possible in a depreciating asset.

Residual value (or resale value) is what the vehicle is expected to be worth at the end of the lease and is the same as, or close to, the purchase price you'd pay then. An inflated residual value can lower your monthly payments, but it can also make it more difficult to sell the lease, trade in your vehicle in the middle of the lease or buy the vehicle at the end of the lease.

The money factor is the interest you'll pay (the lower the number, the better). You multiply that number by 2,400 to get an estimate of the annual percentage rate.

When cars come off lease, they are added to the used-car market. Recently, lessors have been lowering the mileage limits that come with leases to make used vehicles more valuable. Some current lease deals offer as little as 10,000 miles a year. You can buy more miles for about 25 cents a mile, but don't add on more mileage than the warranty covers, lest you undermine one of leasing's advantages.

Comparison shopping is the only way to be sure you're getting a good deal. Shop for your lease at the dealer as well as banks and credit unions, focusing on the money factor and the residual value. (No matter who writes your lease, you'll have to haggle with the dealer over the capitalized cost.) Check out Edmunds.com's new tool for finding lease deals (www.edmunds.com/lease-deals). LeaseHackr has a calculator (www.leasehackr.com/calculator) that helps you compare the cost of leases. Or consider LeaseWise.org. For $350, the service will shop at least five dealers in your area and guarantee the deals.

Editor’s Note: David Muhlbaum is an online editor at Kiplinger's Personal Finance magazine, www.Kiplinger.com.


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