Preparation is the Key to Successful Car Leasing
It’s estimated that as many as 85% of all automotive consumers never do any homework or research prior to visiting a dealer to buy or lease a car.
Making a small investment in the time to do some initial research will return big benefits in the end. To not do so means you’re at the mercy of the dealer, who is already well practiced to deal with customers who are not prepared. Remember, he does this every day for a living; you only do it every few years when you need a new car.
Know the Vehicle You Want to Lease
You should know exactly what vehicle you want and everything about it — features, styles, optional equipment, and prices — before you visit your dealer to lease. Try to know as much about your vehicle as the dealer’s salespeople.
Vehicles that have a history of high resale values and, therefore, high lease residuals make the best lease deals. Be wary of models that have had large numbers of recalls or safety problems. And don’t choose models that drastically change styles every year; they typically don’t hold their value very well and are more expensive to lease. See our article, Cheapest Cars to Lease for more details.
How Much to Pay
Everyone knows that you typically don’t pay full list price when buying or leasing a car — unless the car is a very hot seller that is in short supply — or if you’re among the one out of every seven people in the U.S. who don’t know that car prices are negotiable.
The key to knowing what to pay for a new car is knowing the factory invoice price. This is the price dealers pay the manufacturer for a vehicle.
The difference between factory invoice and MSRP (Manufacturer’s Suggested Retail Price) is the dealer’s potential profit margin — and your bargaining range. Depending on the vehicle, this margin can be as little as 4% or as much as 16%, or more, of the sticker price. You won’t get very far asking a dealer for a 8% discount on a car on which he can only make 6% maximum profit even if he sells at full sticker price.
The Lease Kit provides Dealer Profit Margins for all vehicle makes and models so that you can conveniently determine, at a glance, which vehicles have the most bargaining room. Generally, you’ll be able to get a better deal on a $20,000 car with a 10% margin than another brand, same price, with only a 6% margin.
Savvy automotive consumers always deal from the invoice price up, not from sticker price down. So, how much over invoice is a good fair price to offer the dealer?
It’s impossible to create a hard-and-fast set of rules because of supply-and-demand variation and margin differences, but the consensus of opinion, for vehicles in good supply and average demand, seems to be the following:
- For vehicles with MSRPs up to $35,000, $300 to $500 over invoice is a fair offer. Expect to end up paying more if the dealer decides to do some hard bargaining.
- For higher priced vehicles, up to $55,000 MSRP, $500 to $1000 over invoice would be a reasonable offer, more if the dealer digs in his heels.
- For MSRPs higher than $55,000, expect to pay at least $2000 over invoice.
It’s possible to find even better deals, in which you actually pay less than invoice. Dealers are often able to do this and still make a profit due to holdbacks, direct-to-customer rebates, and factory-to-dealer rebates which are special incentive payments made to the dealer by the manufacturer to help promote sales. When a dealer and/or customer are getting this kind of help from the car manufacturer, the sale/lease price can easily be less than invoice.
It is also helpful to know what other people are currently paying for the same kind of car that you want. See our article What Should I Pay? for more details.
Know Where to Get Discounted Prices
Most people don’t like to negotiate with car dealers, and in many cases it’s not necessary. The Internet allows you to “test” dealer prices without actually talking to a salesperson.
Here’s how.
One of the easiest methods of “testing” dealers to find out how much they are willing to discount prices on specific vehicles is to use one or more of the free online car pricing services, such as Car Deal Finder. Get quotes from multiple services so that you have prices to compare.
Go to each service and specify which vehicle you’re interested in, and they’ll give you price quotes from dealers in your area. The prices you get back might not be the absolute lowest that you could possibly negotiate for yourself (if you’re really good), but it’ll give you a good notion of what you can expect to pay. And if you like one of the prices, you’ve just saved yourself a lot of work and stress. Just go to the dealer, sign your lease or loan papers, and drive away.
See Car Pricing Secrets – What Dealers Won’t Explain to You for more details on this topic.
Look for Promotional Lease Deals
Car manufacturers frequently offer limited-time special lease deals that are usually genuinely good deals, although the deals might be limited to only selected models and styles, and may have other conditions. Before you visit your dealer find out if your vehicle currently is being offered with one of these special lease deals. See Cheapest Cars to Lease to learn which cars consistently make the best lease deals.
Know How Much You Can Afford
Now that you know that vehicle price is key to leasing, and how to negotiate or find a great price, how do you know what price you can afford? Most people know how much they can afford to pay as a monthly payment but don’t know how to translate that into a vehicle price. Our Affordability Calculator, a feature of our Lease Kit, can tell you. You tell it how much you can afford to pay monthly, and it’ll then tell you the maximum vehicle price you should be aiming for.
Also see our article, Don’t Be a Payment Buyer, for more information about how to negotiate selling price, not monthly payments.
Summary
In summary, know your car, know your prices, know what you can afford, and know how leasing works before you set foot in the dealer’s showroom.
Now, read the next topic, Finding Good Lease Deals.