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How To Negotiate A Car Lease

Negotiating a car lease is different than negotiating a car purchase, due to the unique pricing structure and fees.

Knowing what to expect can help you save money. While some car lease fees are negotiable, there are some that are pretty much set in stone, like a car's residual value (which is set based on auto industry values).

Knowing which fees are negotiable and which aren’t can help you successfully negotiate a car lease and potentially save you hundreds, if not thousands of dollars.
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Negotiating a car lease can be tricky, so read-on for details on how to negotiate a car lease.

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How Do Car Leases Work?

The main difference between car leasing and purchasing is that when you finance the purchase of a car you are paying toward ownership and it is yours once the car loan is paid in full. With a lease, you are paying to use the car for a short period of time (usually 2-4 years). When the lease term ends, the vehicle can be either returned to the leasing company or purchased for its residual value.

How to get the best lease deal will depend on your knowledge of leasing, negotiating skills, dealer and manufacturer promotions, and the make and model vehicle you’d interested in leasing.

For more details check out, How Does Car Leasing Work and Is it Ever Worth it? 

Leasing vs. Buying

There are pros and cons to each option, so you’ll need to carefully review your budget and decide which aspects are most important to you.
While it’s exciting to purchase a car and think of it as your own, the truth is, if you are purchasing a car with a loan, then you don’t actually own it until the loan is fully paid. During this time, the car will depreciate and then you own an older car that is less valuable. However, a car paid in full is an asset that can be used as collateral for attaining other loans, or sold or traded-in.

Many people prefer to lease because leasing allows them to have a brand new car at the end of every lease term (generally two to three years), and there’s no need to worry about big repairs or maintenance costs. Due to the cost structure, leasing generally has lower monthly payments which is why many people are able to lease a luxury car that wouldn’t be affordable as a purchase. 

Negotiating a car lease

Negotiating a car lease can sound intimidating, but it’s not when you know the ins and outs. Leasing is a good option if you don’t have a lot of money saved for a down payment on a car purchase or you’re not really sure what make and model car you want to own. In this case leasing is a good interim option.
Learn more by reading Pros and Cons of Leasing vs. Buying a Car.

Understanding Leasing Terms

Can you negotiate a car lease? Absolutely! And it starts with knowing the language of leasing. Understanding these terms can help you in negotiating a car lease so you feel more comfortable doing a lease. Here are the terms you should know:
Lessors vs. Lessee: The Lessor is the entity that grants the lease, such as a dealership, auto maker, leasing company or bank. The lessee is you, the consumer, who agrees to lease the vehicle.
Acquisition fee (or bank fee): This fee is paid at lease signing and is the cost the leasing company charges to initiate and process the lease agreement.
Depreciation cost: Leasing a car includes paying for its depreciation, which is the difference between the vehicle’s list price and the projected residual value at lease end. This number is included in calculating the monthly payment.
Gross Capitalized Cost “Cap Cost”: This is the vehicle price and is negotiable. It is the amount that will be financed. Cap cost can also include up-front fees and taxes.
Capitalized Cost Reduction: Also referred to as “cap cost reduction,” this is the down payment the lessee contributes to reduce the capitalized cost (price) of the vehicle. It can include cash, the trade-in value of your current vehicle, or a manufacturer rebate.
Lease Term: The number of months (term) of a lease agreement.
Mileage Allowance/Limit: All leased cars will have an annual mileage allowance or limit specified in the contract — such as 10,000, 12,000, or 15,000 miles. If the annual allowance is exceeded during the lease term, you will have to pay a penalty fee (typically $0.15 to $0.30 per mile). Driving more miles reduces the value of the vehicle and the leasing company charges a fee to cover that loss.
Money factor: The interest on a car financing agreement is expressed as APR (annual percentage Rate). A lease still includes a monthly interest rate, which is expressed as a decimal amount. To calculate the money factor as a percent, multiply the money factor by 2,400. If the money factor is .003, the interest rate is approximately 7%. According to, a lease deal with a money factor of less than .0017 is a good deal — this equals 4.08%.
Residual Value: This is the assumed value that the car will be worth at the end of the lease term. It is one of the factors used to calculate the monthly payment, so the lessor is compensated for the car’s depreciation during the lease term. This means the lower the car’s residual value, the higher the monthly payment.
Rent Charge: explains it this way…The rent charge is usually determined by using a money factor (sometimes called a lease factor). To calculate the average monthly rent charge, the money factor is multiplied by the sum of the adjusted capitalized cost and the residual value.
Disposition Fee: This is the fee the lessee pays to turn in the car at the end of the term. It covers the leasing company’s costs of cleaning and repairing the car and preparing it for sale or as a used leased car. Some dealerships will waive this fee if you decide to purchase the car or you choose to lease or purchase a new vehicle.
Close-End Lease: This is the most common lease, which is for a fixed-term (period of time). It allows the lessee to purchase the car at the end of the lease term for the residual value, or turn the car in to the leasing company.
Early Termination Fee: If the lessee ends the lease before the end of the lease agreement, an early termination fee will be charged.
Gap insurance: If a leased vehicle is totaled in an accident or stolen and not recovered, gap insurance covers the difference or “gap” between the depreciated value of the car and what you still owe. Gap insurance is an optional policy you can purchase through your auto insurer, but is sometimes included in a lease agreement. Be sure to ask the leasing company before you purchase this added insurance.
Wear and tear fees: Some lease agreements include a fee if the car has excessive wear and tear at the end of the lease term. Before you sign, check the agreement to see what conditions are listed as excessive wear and tear.

Tips for Negotiating A Car Lease

Negotiating a car lease is easier when you know what’s negotiable and what’s not. Here are some tips for how to get the best lease deal:
Research Prices and Deals for the Cars You Want: Shopping by price, rather than monthly payment, is one important way to save on leasing. Look for manufacturer deals, rebates and seasonal promotions that are designed to move cars off the lot. These deals may be limited to specific makes and models, but leases can score by taking advantage of promotions.
Cross-shop Multiple Dealerships: Incentives will vary, as will the money factor, and other factors that dealerships and leasing agents use to calculate lease agreements. It always pays to shop around—so don’t be afraid to walk away if a price or lease package doesn’t meet your needs.
Consider A Different Car: Car inventory is still feeling the effects of the 2020 supply chain slow-down. This means not all makes and models may be readily available with the options you want. Being flexible could land you a better deal if you are flexible.

Costs that are Negotiable:

 Capitalized Cost: says you can negotiate the cap cost downward, and it is to your benefit to do so, because that is what the financial institution acquiring the vehicle from the dealership will pay for the car.
Rent Charge and Money Factor: These are negotiable, and the better your credit score the more likely you’ll get a good low rate.
Mileage Allowance: According to, you can negotiate a higher mileage limit and pay a higher monthly payment.
Disposition Fee and Purchase Options Fee: These may be negotiable if you decide to purchase the car at the end of the lease term, or if you go into a new lease on a different car.

Know What You Can't Negotiate

These car lease costs are not negotiable:
Acquisition Fee: This administrative fee, charged by the leasing company, is not negotiable.
Residual Value: This fixed value is based on the car’s anticipated resale value which comes from automobile industry data.
Registration and Taxes: The fees for these items are set by each state’s Department of Motor Vehicles, and therefore not negotiable. 

Is Leasing A Car Worth It?

Leasing a car is worth it if you know how to negotiate a car lease.
Why lease a car? Many people prefer to lease because leasing allows them to have a brand new car at the end of every lease term (generally two to three years). Leasing a car usually means lower monthly payments, and successfully negotiating a car lease can make it even more affordable. 

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For over 60 years CU SoCal has been providing financial services, including car loans, personal loans, mortgages, credit cards, and other banking products, to those who live, work, worship, or attend school in Orange County, Los Angeles County, Riverside County, and San Bernardino County.
Please give us a call today at 866.287.6225 today to schedule a no-obligation consultation with one of our auto loan experts.
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