What’s the Best Way to Lease a Car? Tips, Strategies, and More

Car leasing allows you to drive a vehicle for an extended period without paying for or financing the purchase. Instead of loan payments, you pay a monthly leasing fee to drive the car for a few years and then return it. Some lease agreements allow you to purchase your lease, but many lessees walk away from a car lease needing to arrange another form of transportation. 

Historically, car leasing has been more affordable than financing and maintaining a car, at least in the short term. Leasing can also unlock newer, more expensive vehicles you may not have the budget to finance. Leasing can provide several benefits if you prefer driving new cars in the first few years. 

Understanding how car leasing works requires knowing the basic terms and procedures of obtaining a car lease. Once you know the ins and outs of car leasing, you can approach your next lease (whether it’s your first or one of many under your belt) with confidence and insight. You’ll feel more in control of your lease agreement and drive away knowing you got the best deal possible. 

Figuring out how to negotiate a car lease requires learning from others who’ve gone through the process before. Use the following car leasing strategies to spot car lease fees to avoid and walk away with a lease deal you can be proud of. 

1. Define your ideal lease

Life is often divided into three categories: what you want, need, and get. However, the best way to tackle your next lease is to brainstorm what you want and can afford. More importantly, it’s a great time to check your finances and plan for the future. 

When you define your ideal lease, don’t think of it as leasing a Mercedes-Benz or Audi for $100 monthly. Instead, put numbers to what you can afford, from monthly payments and down payments to money factors and additional leasing fees. You can check your credit score with a free annual report to understand what money factor you’re eligible for. 

You should also consider more than one make and model. If you want to lease a truck, consider the Ram 1500 vs. the Chevrolet Silverado. Broadening your search can help you find better lease deals to fit your needs. If you know what new models are coming out, you can also find lease deals on older models. Just avoid ending your lease in the last few months of the year. 

2. Brush up on lease terms

If you don’t know the rules of the game, it’s near impossible to stay competitive. Learn the lease terms that define lease agreements so you can be sure you’re getting the best deal possible. That means looking for a high residual value to finance less over the life of your lease. 

You should also look for a low money factor. Below 0.00333 is a superb money factor, but anything over 0.0075 translates to an interest rate of over 18%. Capitalized costs, disposition fees, and option discount adjustments are terms you should know before you set foot on a dealership lot. 

3. Control communication

One of the tricks car salesmen use keeps you waiting around the dealership until you’re tired of staring at the same four walls. Avoid the humdrum of wasting your time as you sweat it out by communicating via email instead. This way, you can have written documentation of any negotiations. You can also ask the salesperson to deliver your car so you’re not caught in the finance office paying for add-ons and extended warranty coverage you may not want.

4. Negotiate the smart way

The first and often unspoken rule of negotiating is understanding where you have grounds to negotiate and, more importantly, where you don’t. You can negotiate the following terms in a lease agreement: 

• Money factor
• Capitalized costs
• Mileage limits
• Purchase option fee
• Disposition fee

It’s a common rule of thumb to adhere to the 1% rule. This rule dictates finding a monthly lease payment equivalent to 1% of the car’s purchase price. For example, a $60,000 car would be a steal if you leased it for $600 monthly. 

You cannot negotiate acquisition fees, residual value, registration costs, or sales tax. However, if you shop around for lease deals, you can often use negotiated deals to prompt other dealerships and leasing companies to match or beat them. Some manufacturers offer leasing specials that are already negotiated, so be sure to read the fine print before you start wheeling and dealing. 

Lease hacking can often be about what not to do as much as it is about tips and tricks. For example, it’s a good idea to negotiate for a better deal, but knowing which fees you absolutely cannot negotiate will save you breath. Here are a few mistakes you can avoid when leasing a car. 

1. Lease too long or near the end of the manufacturer’s warranty 

Leasing longer than three years or 36 months can put you in danger of exceeding the manufacturer’s factory warranty. Outside the warranty, you may be responsible for certain repairs, which can dampen the benefits of leasing versus owning or financing. The only time it’s prudent to purchase an extended warranty if you’re leasing is if you can and want to buy out your lease. Check with the leasing company to see if they offer lease buyouts before you invest in warranties. 

2. Paying a hefty down payment

Having cash to work with when negotiating can help you gain the upper hand. However, putting a down payment on a lease does come with some caveats. While you can reduce capitalized costs and your financed amount with a down payment, you typically aren’t reimbursed if the car gets stolen or totaled. Often, it’s best to use your cash sparingly and save it in your emergency fund instead. 

3. Exceeding your mileage limits

Every lease agreement stipulates how many lease miles per year you’re allowed to drive. You can split those miles over your lease term as you see fit. 

However, it can be easy to exceed those limits and pay up to $0.30 per mile over your contracted miles. If you drive even 1,000 miles over your mileage limit, that’s an extra $300 in fines you’re responsible for. If you think you’ll exceed the miles you initially selected, purchase extra upfront. Extra miles cost less at the beginning of a lease than afterward. 

4. Disregarding excess wear and tear

It can be easy to shrug off cleaning and maintaining your lease, especially since you know it’s going back at the end of your agreement. Just because you never have to see it again doesn’t mean it can’t have a sizable impact on your wallet. You’re responsible for excess wear and tear on a leased car, from interior stains and physical damage to exterior scratches, dings, dents, and scuffs. Bodywork and deodorizing procedures can add up quickly. 

5. Terminating your lease early 

Most lessees know what happens at the end of a car lease: you either walk away, lease another car, finance a purchase, or buy a car outright. If you have to terminate your lease early, the fees and penalties start to add up. Your lease agreement is a legally binding contract that leasing companies can enforce by requiring you to pay your lease in full if you terminate early. Most leasing companies will work with you, but it’s often best to avoid a lease altogether if you need to terminate it early. 

The most popular type of lease is a three-year, 36-month lease. Dealerships and leasing companies advertise these leases to optimize leasing terms for the lowest monthly rate. However, many of the best car leasing deals require a near-perfect credit score, several thousand due at signing, and a sizable down payment. 

Nonetheless, signing a lease agreement with three-year terms can help you spread out depreciation and make the most of your lease. New cars depreciate fastest in the first few years, so extending that time limits this non-cash expense's impact on your monthly payment. Many manufacturers refresh their lineup every three to five years, so a three-year lease positions you well enough to snag a new model before it can be sold. 

The best time to lease a vehicle is when you’re ready. Besides preparing yourself mentally, you should also consider your budget and financial plans for the near future. Ask yourself what you’re looking for in a lease besides the specific vehicle(s) you’re looking for. How can a lease satisfy several of your goals? 

Once you’ve prepared for obtaining a lease, choosing the right time to approach a leasing company or dealership can go a long way in setting you up for success. Holidays are a great time to shop for a car, including specific days manufacturers set aside for deals. The last few months of the year are also prime car leasing times because auto companies want to clear their books and dealership lots of old inventory. 

If the end of the year has already passed, you can still visit leasing companies and obtain a deal at the end of the month or quarter. Several dealerships and leasing companies capitalize on tax season as well. If you hear or see a new model advertised, consider approaching your local dealerships about leases on the old models. Leasing a car that’s a few years old can help you save on your monthly payment. 

For most people, the best way to get out of a car lease is to fulfill the lease requirements and move on to the next lease. However, life has a way of putting up roadblocks sometimes to make fulfilling the lease more difficult or even impossible. In these instances, early termination is one of many options. 

Early termination typically comes with a hefty penalty that may comprise the remainder of your lease payments. If you’ve agreed to a multi-year contract and only paid for a few months of your lease, these fees could add up to thousands of dollars. A lease agreement is a legally binding contract that some leasing companies make you fulfill down to the last cent. 

However, most leasing companies will work with you to part amicably, depending on your circumstances. Some lessors offer a tailored approach that still requires you to pay an early termination fee, but one that’s far less than fulfilling the contract. You can also buy out the lease and sell the car, transfer your lease to someone else, or enter into another lease and tack on your previous payments. Your financial circumstances often dictate which options are available to you.