How to Evaluate a Car Lease

Review a lease before taking the keys.

The benefits of leasing an automobile make it an attractive option over purchasing a car. The down payment can be significantly lower, and the commitment level of the buyer is for a shorter time period. Car values often depreciate more quickly than the car's loan terms, leaving buyers "upside down" financially when they decide to sell the car. For leasing to be financially attractive, it is necessary to evaluate the terms of the lease, to ensure you are receiving the best possible.

Things You'll Need

• calculator
• MSRP value of the car
• patience
• negotiating skills

Instructions

1. Look at the depreciation of the Manufacturer's Suggested Retail Price (MSRP) over the term of the lease. Take two cars with an MSRP of $40,000, where one is worth $27,000 at the end of 24 months, and the other is only worth $22,000. The first car, with the lower depreciation rate, will generally have a lower lease rate.

2. Negotiate the cap cost, or lease rate. This number should be significantly lower than the MSRP, and can be negotiated just like the purchase price of the car. Cap costs can be reduced by trading in a vehicle, taking advantage of dealer incentives, or by making a down payment. The lower the cap cost, the lower your monthly payments, and therefore interest payments, will be.

3. Calculate the residual value of the car you plan to lease. The best cars to lease are those whose residual values are 50 percent or more of their original MSRP at the end of 24 months. Because residual values fall quickly after the first two years, you can usually negotiate better payment terms if you opt for a longer term lease.

4. Make sure you are covered for the term of your lease by a warranty. If the car's full-warranty is for 36 months, that is the longest lease you will want to sign. The longer you have a car, the more likely it is to encounter problems and require repairs. Ask about the specifics of what your dealer covers, and what you will have to pay for out of pocket. Some companies, like BMW, offer no-charge scheduled maintenance, including wear items--even wiper blades.

5. Evaluate your lease duration against how many miles you plan to drive. Leasing is often a better option for casual drivers who know for certain they will stay within the mileage limits. Sometimes, you can even negotiate a credit based on unused miles. If you go over the mileage limits, it can become extremely costly when you return the car at the end of your lease.

Tips & Warnings

• European and Japanese cars tend to depreciate less than American-made cars.

References

• How Car Leasing Works