10 Tips for Negotiating a Car Lease

A dictionary
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1) Understand the Language of Leasing

If you don’t understand what the dealership’s finance officer is talking about, it’s easy for them to get you into a bad deal. The terminology of leasing is different than that of vehicle purchases or auto loans, so here’s a key to the terms you’ll hear.

Capitalized Cost: The capitalized cost (or cap cost) is simply the price of the vehicle. Don’t confuse it with the car’s MSRP, which is the price shown on the window sticker. The cap cost reflects any discounts that you are able to negotiate.

Cap Cost Reduction: Anything outside of negotiation that reduces the capitalized cost of a vehicle is called the cap cost reduction. It can include the value of your trade-in or special lease deals offered by the vehicle’s manufacturer. Maximizing the cap cost reduction effectively lowers the amount you have to pay for the car.

Money Factor: The money factor is the interest rate on the funds that are financing the lease. It can’t be directly compared to car loan interest rates, but it can be used when you are comparing different lease offers.

Residual Value: A car’s residual value is a professional estimate of what a specific vehicle will be worth at the end of the lease contract. It reflects the expected depreciation of the vehicle and is determined before the lease contract is signed. What you pay for a lease is determined by subtracting the residual value from the cap cost, then adding fees and interest. Residual value is an educated guess and may be higher or lower than the car's actual retail value as a used car.

Buyout Price: If you decide to buy the car at the end of the lease, this is the purchase price. It may or not be the same as the residual value. If the residual is way off at the end of the lease, the dealer may make or lose money on the deal when they sell the vehicle on the open market.

Acquisition Fee: The acquisition fee is an administrative charge tacked on at lease signing to cover the costs of preparing the lease. You'll also have registration costs and taxes due at the beginning of the contract.

Disposition Fee: The disposition fee is one of the charges that you’ll pay at lease end. It’s intended to fund the car’s refurbishment and preparation costs as it is sent to the used car market. You’ll also be liable for any excess mileage or wear costs at lease end.

Due at Signing: The amount due at signing is the total price that you'll have to pay to drive the car home when you initiate the lease. It typically includes a down payment, the first month's payment, and any required security deposit. On advertised deals, the amount due at signing usually does not include taxes or fees.

Purchase Option Fee: The purchase option fee is an administrative fee that you’ll have to pay if you choose to buy the car at the end of the lease. It is tacked onto the buy-out price.

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