Car Leasing Secrets and Strategies for 2023

Leasing a car is a game of strategy you play with a dealer. You need to know the secret moves to win the game.

You want the best deal with the lowest cost and monthly payment, and the dealer wants the most money and most profitable deal he can make, at your expense.

Unfortunately, for most people, the dealer holds the best cards because he knows the secrets of leasing. It’s his everyday job.

What are those secrets and can we, by knowing them, forge them into a strategy that levels the playing table?

Negotiate price

A car dealer makes his money the same way on a lease as he does on a purchase. This means the higher the selling price of the car, the more money he makes. While most people know to try to negotiate a lower price when they purchase a car, many don’t know they should do the same when leasing.  Of course, a dealer will take advantage of this fact and base his leases on full sticker price, or more, if his customers don’t catch it.

Because the attraction of leasing is lower monthly payments, customers tend to focus only on monthly payments. This allows a dealer to manipulate the important factors, such as vehicle price, any way he wants if it gets the customer the monthly payment he wants. The customer walks away satisfied that he’s made a good deal but, in fact, it’s likely not a good deal and could have been much better if he had known to negotiate the price of vehicle first.

Beware of the low payment trap

While we emphasized the need to negotiate price above, dealers will often attempt to steer customers back to focusing on monthly payments, especially when a negotiated price still doesn’t meet the customer’s payment objectives. The dealer still has “tricks” up his sleeves to manipulate the deal to get a better payment.

In the worse case, he can switch the vehicle model (without informing you) to one that is less expensive so that it appears you are paying less, but in fact may be paying full price or more.

The sales person might get to a lower payment by raising the down payment amount in his calculations. You wouldn’t find out about it until you get the final stages of signing your papers, when you are less likely to object or back out of the deal.

He can also lower the annual mileage limit (again without informing you) from, say 12,000 miles a year to 7500 miles a year. He might also increase the term (lease months) of the lease, say, from 30 months to 39 months or more. All of this can get you a lower payment, but with conditions that you were not informed about — car leasing secrets you may not have known about.

Dealers don’t lease cars

It’s a secret to some consumers that dealers don’t actually lease cars themselves. Dealers only arrange leases on behalf of their manufacturer’s or distributor’s finance company. Once the lease has been approved, the dealer sells the car and “assigns” the lease to the finance company. The dealer gets paid, in the same way he would get paid if it were a loan, and the finance company becomes the owner of the vehicle. Afterwards, the dealer is out of the picture and the lease arrangement is between the finance company and the customer.

Why is this important to know?

It’s important to realize that a dealer can only negotiate one factor in a lease — price — the same factor that he controls if it were a loan or cash purchase. There are several important factors in a lease — money factor (finance rate), residual value, acquisition fee, disposition fee, and other terms — that a dealer cannot negotiate on behalf of his lease finance company. There are rare instances, however, where the finance company might allow a dealer to offer some limited concessions.

Therefore, when negotiating a lease, customers should focus on those costs controlled by the dealer rather than lease factors. Examples would be dealer “doc” fees, “prep” fees, add-on items such as window etchings, paint sealant, extended warranties, and various insurance products that are generally overpriced and unneeded.

Leasing is not renting

Many dealers know that customers don’t fully understand leasing and how it works, and can imply that leasing is very similar to renting in the sense that the car can be returned or swapped, or can be traded back at any time — without ever saying as much.

Fact is, leasing is not renting and is a form of financing just like a loan. The difference is that payments are lower because the car is returned (or purchased) at lease-end for the remainder of its value not paid during the lease.

Customers often discover this misunderstanding when they decide they no longer want the car and find that they owe thousands of dollars to end their lease early. Beware of a sale person’s explanation of how leasing works — because they often don’t know themselves and simply tell customers what he/she thinks they want to hear.

A lease agreement is for a specific car for a specific time, which cannot be changed mid-term. Don’t let a dealer salesman tell you otherwise.

Make as much down payment as you can

This might seem obvious as a way of reducing monthly payment amount and finance costs, but the effect of a down payment (“cap cost reduction”) is much more significant in a lease than in a loan. When leasing you are only paying the difference between vehicle price and lease-end residual value, not the entire vehicle price.

Let’s say you make a $2000 down payment of a car lease in which the selling (lease) price is $30,000 and the residual value is $15,000. Your $2000 is 13.3% of the amount you owe — $30,000 minus $15,000. If you were purchasing the same car with a loan, your $2000 would only be 6.6% of the amount you owe ($30,000), which would have a much smaller effect on your monthly payments.

If you have a trade-in vehicle, the same is true. Its value, used as a down payment, has a much greater effect on lowering lease payments than on loan payments. This is a secret few automotive leasing consumers know.

Do a single-payment lease

If you have the cash, or sufficient value in a trade vehicle, use it make all your lease payments up front in a single one-time payment and avoid monthly payments altogether. Contrary to some belief, this does not avoid finance charges in the same way that pre-payment of a loan does, although you may be able to get a lower interest rate (money factor) using this strategy.

A variation of this technique is to trade a vehicle whose value is about the same as the required one-time payment on a new lease. This may require some cash — or not — or might get you a cash refund. In this way your old vehicle pays for your entire lease — no monthly payments.

Be sure to get GAP coverage

Dealer salespeople will never mention GAP coverage when discussing a car lease. It’s sometimes called a “waiver of responsibility” and is included in many lease contracts, but not all. It means you are covered for the entire lease payoff should your vehicle be stolen or totaled in an accident during your lease. Without it, you could owe several thousand dollars, depending on how far along you are into your lease, and your insurance doesn’t cover the entire debt.

GAP “insurance” or a waiver has always been included for free in past years. Not so anymore. In some cases, it’s now offered at a relatively small extra cost — or not offered at all.  It’s important to have, so make sure you either get it for free, buy it from the dealer, or get it from an auto insurance company.

Your dealer won’t explain the details

A dealer sales person’s job is to arrange the general terms of your lease with you — monthly payment, term months, down payment (cap cost reduction) — based on interaction with and agreement from his sales manager. It is not his job to explain that there are other costs and fees, mileage restrictions, wear-and-tear limits, early termination conditions, and taxes.

So, just when you think the deal is done, you must go into the F&I (Finance and Insurance) Manager’s office to sign papers. That’s when you might discover (because you read the contract, not because it’s explained to you) that there are dealer “doc” fees, “prep” fees, sales tax, official tag and title fees, acquisition fee, fee for excessive mileage, damage fee, and a lease-end disposition fee. He’ll also try to sell you high-priced add-on products and services, expended warranties, and various insurance products. It’s in the F&I Manager’s office where dealers make the most profit. And it’s in that office where many customers’ good deals go off the rails.

So, it’s important to read your lease contract, know what you are paying, negotiate those items that are negotiable, refuse those items that you don’t want and don’t need, and ask questions.  It’s the F&I Manager’s job to get you in and out as quickly as possible but don’t let him rush you into signing a bad deal.

Watch for deceptive early trade-in offers

Dealers want to sell or lease you a new car as soon as possible after your last deal. For leasing customers, they often send out offers to “pay off your lease” early if you come in and buy or lease another car.

Sometimes this can be a legitimate offer to take your old vehicle in trade, in which case the dealer buys the vehicle from your lease finance company for the payoff amount. However, if the amount of the payoff exceeds the vehicle’s wholesale market value, you might find that difference added back into your new lease in some non-obvious way.

In other cases, the dealer might simply make your remaining lease payments and return the car to the lease finance company on your behalf. You might find the cost of those payments added back into your new lease, or not. Further, if your old car had damages or excessive mileage, you’ll get a bill in a few weeks from the finance company.

Once you understand the secrets of car leasing, you have a much better chance of winning the game.