Car Leasing Basics

Leasing a new car can be a great choice if you prefer to get a new car every two or three years. But let’s face it: the whole process can be a little intimidating, especially for someone new to leasing. That’s why we’ve put together this simple guide to getting a good lease deal.

First of all, you should always review the lease specials available in your area. Manufacturer-backed special offers may be the easiest and best choice for anyone who wants to lease a car without having to worry about complicated negotiations, but check all the details -- especially the down payment. On Edmunds.com, you can find all available offers on our Incentives & Rebates pages. Or just skip to our hand-selected Deals of the Month to find lease bargains available right now.

If a special lease isn’t available for the car you want, don’t despair. You can still negotiate a fair lease agreement with a dealer. Just make sure to review each of the following parts of the deal before you sign. We've broken it down by what's negotiable, what isn't negotiable and what may be negotiable.

What’s negotiable:

  • The Cap Cost, or Capitalized Cost: Think of this as the vehicle’s selling price; it should be negotiated the same as if you were purchasing it. Make sure this is set at or below the average price that other shoppers are paying for similarly-equipped cars in your area -- what we at Edmunds.com call the True Market Value (TMV).
  • Trade In Value: If you are trading in a car as a part of your lease deal, make sure you're getting a fair value for it by calculating its value using our Used Car Appraiser.
  • Money Factor: This is simply the interest rate on a lease but expressed as a decimal number. The amount you pay will likely depend on your credit score. To find out what you are paying, take the money factor, and multiply it by 2400 -- for example, .00250 X 2400 = 6 percent. Dealers sometimes mark up the money factor for additional profit. If you feel you are being overcharged, ask the dealer for a lease based on their "buy rate."

What’s not negotiable:

  • Residual Value: This is the agreed-upon value of the car at the end of its lease term, after accounting for the car's anticipated depreciation. Banks or leasing companies typically set this amount based on industry data. The best cars to lease are those that tend to retain their value over time -- e.g. at least 50% of their original value after 36 months.
  • Acquisition Fee: Sometimes called a bank fee or administrative fee, this is a fee that leasing companies charge to arrange the lease. This fee is typically between $395 - $895, depending on the vehicle and leasing company. Note that acquisition fees can be bundled into the monthly lease payment, or paid up-front.

What may be negotiable:

  • Cap Cost Reduction. This is any payment, trade-in credit or rebate amount that reduces the total amount being financed during the lease and has the effect of reducing the monthly payment amount. A Cap Cost Reduction is sometimes required in promotional lease deals. (Note: we generally advise keeping any Cap Cost Reduction to a minimum since the amount is not typically reimbursed by insurance if the car happens to be involved in a serious accident and totaled.)
  • Buy-Out Price. If you think you may want to purchase your leased car at the end of the lease period, check to see whether the leasing company is flexible on the buy-out price. In some cases, they may agree to set the buy-out price lower than the residual amount.
  • Disposition Fee. This fee is charged by the leasing company to cover the expense of cleaning up and selling the car after you return it at lease end. Most charge between $300 and $400. You normally won’t be able to avoid this charge unless you buy the car at the end of the lease -- or, in some cases, lease another car of the same brand.

To review the entire leasing process in more detail, please see 10 Steps to Leasing a New Car.

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