Give me the Dope on Leasing a Car

October 16, 2007 10:57 PM

Give me the Dope on Leasing a Car

Mrs. SlyBevel and I have been pondering leasing a new Accord. Based on Honda's commercials, we'd save about half of our current monthly payment on a lease (after a down payment at signing, of course). We're in Most Extreme Debt-Paying Challenge mode right now, so this would be a big deal. We understand that at the end of the lease, we will not own the car, so it's a bit of a money pit, and we're ok with that.

Here are the questions:

Any hidden gotchas that we need to pay attention to?

Are leases negotiable? (Can I haggle at the dealership like when I'm buying, or do I just have to take what they offer? Is there a known way of getting a really great deal?)

Is there somewhere I can go online for average lease monthly payments by model? (I don't want quotes from dealers, I just want to see an estimate of what different models lease for.)

Disclaimers:

It's not a question about Hondas. I already know that I like them.

I did search before asking this question, but let me know if AskMe has previous questions that are relevant. (They all seemed to be about buying out lessees, or getting out of a lease early. Or apartments.)

I've already requested some dealer quotes, but I don't want to request quotes for every model that I consider...I'd just like to see a list somewhere of a ballpark of what you'd pay on a new lease on a given model.

We've already evaluated just selling our current car and doing without, and for our purposes here, that's not an option.

We're well within the average lease mileage restrictions (12-15k miles/yr.).

posted by SlyBevel to travel & transportation (11 answers total)

As far as gotchas, be aware of excessive charges for going over the allowed mileage, overly stringent condition requirements for when the car is turned in, and end-of-lease/balloon payment fees.

Leases are negotiable, how negotiable depends on a lot. I would imagine a new design Accord will be in high demand so...
posted by aerotive at 11:52 PM on October 16, 2007

You may want to investigate what type of car insurance you will be required to carry, as the lessor can have more stringent requirements than the limits that you typically carry or what your respective state requires. I'm sure Honda can give you the details. (At least, this is how it worked when I leased my 2000 VW Jetta years ago.)
posted by Asherah at 12:16 AM on October 17, 2007

First off, make sure you get gap insurance. It's fairly standard, but the really ugly lease horror stories all involve a lack of gap coverage.

Secondly, yes, leases are negotiable, but the sheer quantity of numbers makes it tricky. For example, if you say "I want a payment of $X/month", the dealer can make that happen by adding fees up front, or fees on the tail end, or reducing mileage allowances, or...you get the picture. Fees can also be disguised as taxes or other "unexpected" expenses. With leasing, you really have to do your research and be willing to walk away at any point or you will overpay.

Promotional leases -- those advertised by manufacturers -- may not be negotiable, depending on how advantageous the lease is to the dealer. According to this page, on this particular deal, the dealer has to accept an $1800 discount on a all-new Accord as part of the deal; I doubt that many would be willing to go lower. (In fact, between the optional dealer participation and the high credit score required, I doubt many cars are actually leased under these promo terms.)
posted by backupjesus at 4:39 AM on October 17, 2007

First things first: do not make a down payment ("cap cost reduction") on a lease. You may lower your monthly payment, but in the event that the car is totaled early in the lease, that money is gone--no insurance, gap or otherwise, will return it to you. Stick that money in the bank, instead, and make your payments from there.

Let's talk about how leases work. You're paying for the projected depreciation of the vehicle over the life of the lease plus a finance charge. That's all. Of course, that's also how you get screwed. You should know the following information before you put pen to paper at the dealership. If they won't discuss these numbers with you before you sign, walk away. Quickly. Do not negotiate based on monthly payment.

1. The sale price of the car. This should be well under MSRP. Check edmunds.com for invoice and "TMV" pricing on a car to get an idea of what this number should be.

2. The residual value; ie, the car's projected value at the end of the lease. For a 36-month lease, this is probably in the 58-65% range. This varies by vehicle, term of lease, and mileage.

3. The money factor (MF); this is the interest rate on the lease. It will appear as a decimal like 0.00125 or 0.00320. Multiplying by 2400 will give you the actual interest rate. Check at the Roadfly financing board to see what the current, fair value is (it varies by vehicle and term of lease).

4. Any other fees (inception fee, DMV fees, taxes) that will be rolled into your capitalized cost.

Once you have those numbers, it's a small task to calculate your monthly payment. Run the numbers yourself a few times (maybe a best-case and worst-case scenario) so you'll know right away if you're getting a good deal. Check Leaseguide for more information and an easy payment calculator (they've got better explanations of how the payment is calculated than I could manage).
posted by uncleozzy at 6:13 AM on October 17, 2007 [7 favorites]

Seconding uncleozzy's sage advice. Everything is negotiable, a fact of life I wish I'd known when I was younger (because, as it turns out, negotiating is fun!).

See also the Edmunds discussion forums regarding leasing and the make/model of the car you're after.
posted by notyou at 7:01 AM on October 17, 2007

uncleozzy, one minor quibble: the counter-argument on upfront money would be that you're likely paying more in interest on the increased capitalized cost than you're making on the same money in a savings account. Giving up a few percent a year on a relatively small sum may be worth it to keep the cash available, but there's still a cost.
posted by backupjesus at 8:41 AM on October 17, 2007

My first lease, I ran into an unusual gotcha, in that the state where I initially leased the car required the actual owner to file for plates, ie the dealer. When I moved to another state, while I updated my address with the leasing company, I forgot about telling the dealer, and ended up pulled over with expired tabs.
posted by nomisxid at 8:53 AM on October 17, 2007

The main advantage of hanging onto the down payment isn't that you earn interest while it's in the bank, it's that, like I said, if the car is totaled or stolen, even gap insurance won't cover the amount you put down (as far as I understand it; Edmunds agrees).
posted by uncleozzy at 9:07 AM on October 17, 2007

Wow, you guys are amazing. I'm so glad I asked this question.

Backupjesus, I was hoping to find a promo page just like the one you linked. I was on Honda's website, and apparently missed it by two clicks or so.

uncleozzy. Wow. I so appreciate the links to Edmunds and LeaseGuide. Googling just gets sales pitches, and I lost these guys entirely in the roar.

And thanks again, backupjesus, for the excellent point on upfront money versus access to monthly cash.

The Hive Mind comes through again. I'm still around, if anyone has anything to add.
posted by SlyBevel at 9:14 AM on October 17, 2007

A great forum for finding out the best "deals" is

Edmunds

For example, currently Honda doesn't have a special lease for Accords... so the money factor rate you will pay is probably fair, but why not get a better deal?

yet the Honda Pilot has a special lease of $279 per month if it's the "2008 Pilot 2WD VP with automatic transmission (model YF2828EW)". When we were loking to lease an accord, they had a better deal on the V6 EX vs the 4 cyl EX. So if was kinda goofy. You could lease one with more options and the bigger engine for less money. Mostly they were doing that as the EX 4cyl is supposed to be more popular.

So I would watch for a "deal" on Accord leases, then go look at the specific model they have the "deal" on and compare it to your "dream" Accord. I think you'll find a big difference. I would never personally buy a lease without a special on the terms as that webpage shows for different models.
posted by thilmony at 10:07 AM on October 17, 2007

You can also take over someone else's lease and save some money. This other person may be moving to another country, wants to upgrade their car before their lease term expires, or simply can't afford it anymore. They may have paid a downpayment that they must part with, but you can take advantage of. Check these sites out.

Also, a good time to shop for cars is near the end of the month, perferably on a rainy day. Dealers have monthly quotas to meet for bonuses. They are more open to negotiation for this reason. Also, they may be more flexible if it's rainy/poor weather because potential customers aren't out shopping.

Dealers are less flexible with promotions they are running because they have the excuse that they are already giving you a deal, why should they further negotiate? Previous year's models usually have lower interest rates to get them out the door, but it depends on the season they roll out new models, and options may be limited.
posted by Blue Buddha at 12:26 PM on October 17, 2007