The right way to lease a car

@PeterDrivesMay 8, 2012: 5:26 AM ET
Before you sign, remember that you can negotiate a lease.

Before you sign, remember that you can negotiate a lease.

NEW YORK (CNNMoney) -- When it comes to leasing a car, a lot of people just ask, "How much is a lease on that car?" and leave it at that.

One thing they may forget is that you can negotiate anything, including a lease.

But first, you need to think about whether leasing is really right for you to begin with. If it is, then you need to go about it the right way to make sure you're really getting the best deal.

A lot of car shoppers like leasing because the monthly payments are lower than with an outright purchase. That's because you're not really paying for the whole car. You're just paying for the amount the car is predicted to lose in value between the time you drive it away and the time you give it back. (Plus interest and fees, of course.)

Interest rates are low these days and prices for used cars are high. That combination is a recipe for very low lease rates, something that makes leasing especially attractive for a lot of car shoppers.

Should you lease? If you're someone who trades in cars every few years, leasing probably makes sense for you. Richard Arca, an analyst with, is just such a person. That's why he's made leasing his particular specialty.

"Even when I bought, it seemed I was trading in every two or three years," he said.

Also, he didn't drive a lot of miles, he said. That's another important factor since lease contracts limit the number of miles you're allowed to drive the car before incurring additional fees. If you drive more than about 12,000 miles a year, or if you're especially hard on your vehicles, leasing might not be for you.

Once you've decided to lease, you want to get the best deal. Keeping your eyes open for good lease offers is a part of that. These days, with interest rates relatively low, they aren't hard to find.

"A lot of automakers are offering lots of good lease deals," said Arca.

As always, the most important thing is picking the right car, not just the right deal. A low monthly payment isn't worth much if you end up hating the car.

The negotiation: Once you've picked the car, it's time to strike a deal.

Arca recommends, rather than trying to negotiate the terms of the lease, negotiate the purchase price of the car, just as you would if you were simply buying the car outright.

The reason is that although you're leasing, not buying, the bank offering you that lease is actually buying the car you'll be driving. So play the role of the bank's car buyer working to lower the price at which the finance company will purchase the vehicle. That, in turn, will lower the amount you have to pay to lease it.

It's what's called the "capitalized cost." The lower the "capitalized cost," the lower your monthly payments.

Compare the "cap cost" to the "true market value" of the car as listed on, or to similar market price projections from or Kelley Blue Book's There's no reason, just because you're leasing it, that your cap cost should be substantially more than the true market value.

Arca recommends not even mentioning that you're going to lease the car until after you've negotiated a purchase price. Then, once that number's set, tell the salesman to draw up a lease contract at that price.

Once you see the contract, check to make sure the "cap cost" is the price you've negotiated, plus a reasonable "acquisition fee" from the bank, usually a couple of hundred dollars or so.

The fine print: Once the "cap cost" is set, Then look at the terms of the lease contract.

One other factor to keep in mind is the "drive off cost," or how much the lease costs right at the beginning before you even get the car. This will include a down payment, if you're making one, and the value of the vehicle you're trading in, if there is one.

The down payment and trade-in are usually combined into a number called the "cap cost reduction." They reduce your monthly payments by paying off some of the cost of the car right up front. If you'd rather not pay so much up front, you can ask to have your down payment reduced and pay slightly higher monthly payments, instead.

Also, make sure you understand what will be expected of you when the lease contract is up. Check the number of allowed miles. You can ask for that to be increased if it seems insufficient, but your monthly payments will be a little higher.

Try not to get too attached to the car. If you do, and decide to buy the vehicle once the lease is up, you could find yourself paying more than the car is actually worth. To top of page

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