How to Lower Your Lease Payments
If this is the case, let's take a look at how we can minimize your monthly payments as much as possible.
Choose Cars with High Residual Values
The vast majority of a lease payment goes toward paying off the vehicle depreciation. As you probably already know, new cars lose value as soon as you drive it off the lot.
A typical car will lose about half it's value after only 3 years. Think about it from the leasing company's perspective. They are essentially "renting" the car to you, but when you turn it in at lease end, the car is only worth half the value.
This is called the residual value - the remaining value of the vehicle. In a lease, it makes sense to choose cars that have high predicted residual values.
Two vehicles that cost the same but have different residual values will end up with different monthly lease payments.
Here is a list of brands that tend to hold their value better than their peers.
- Land Rover
- Mercedes Benz
Look for Lease Specials
To get the lowest lease payments, you should try to lease only when there is a special lease deal being offered by the manufacturer.
These lease deals are nearly impossible to beat because the manufacturer has the ability to offer special incentives to lower the payments.
They will usually set up the lease with an artificially high residual value, or they will offer a lower money factor (interest rate), or reduce the price (capitalized cost) of the vehicle. Sometimes, they will do all three!
Independent leasing companies or banks simply cannot match these lease specials. Keep in mind that some manufacturers only offer these lease specials on only one or two trim levels, usually ones that are not as popular.
Lease a Used Car
Since depreciation is so important when it comes to leasing, you may want to consider leasing a used car in order to minimize your depreciation cost.
A three year old used car has already depreciated by about 50%. The depreciation rate slows down after 3 years so your depreciation cost shouldn't be very large.
The main drawback to leasing a used car is you will have more risk when it comes to repairs since the car won't likely be covered by the manufacturer's warranty any longer.
You can also get lease quotes on used vehicles through independent leasing companies such as LeaseCompare or try your local bank's leasing department.
Lower the Mileage Allowance
One final way to minimize your lease payment is to lower the mileage allowance. Miles driven is a major factor that affects the value of a used car.
The fewer miles you drive, the more the car will be worth at the end of the lease - thus lowering your depreciation cost.
Sometimes you can get leases with annual mileage limits of as little as 7,500. Now keep in mind this will not work if you plan on driving your car more than the allotted miles. If you do so, penalty fees will more than offset your savings - so only limit the miles if you truly do not drive a lot.
My Recommendation for Car ShoppersTrueCar No-Haggle, CarsDirect, and Ryde Shopper are the quickest way to see the lowest car prices in your area. These sites show you no-haggle prices from dealers closest to you - and the deals are usually really good. This should be the first step you take when negotiating your car price. Follow this up with my checklist to make sure you squeeze out every last bit of savings.
- Gregg Fidan
Each week, I'll keep you up-to-date on the latest car deals and news that might affect your purchase. This includes...
- Best Rebates, Incentives, and Lease Deals
- Latest Car Buying Scams and Tricks
- The Best & Worst Time to Buy a Car
- Which Cars You Should Avoid