A lease contract can be both economical and flexible if you know the options that are available to customize the contract to your personal situation and budget.
As leasing grows in popularity, banks offer more finance options to serve a broader range of shoppers. However, only experts know many of these strategies. Furthermore, the rules of leasing programs are always changing and not all lenders offer these options.
If any of these strategies sound interesting, and you want more details, check the carmaker's Web site under car buying tools. You can also speak with the finance and insurance officer at a dealership, but "he has a vested interest in making sure everything goes smoothly and you sign on the bottom line," says Dave Cavano, manager of the Automobile Club of Southern California's car-buying service. A representative from the leasing company might prove to be a more neutral source.
Here, then, are five leasing strategies from the experts that can cut costs and customize leasing for your individual situation.
1. Make multiple security deposits to reduce your interest rate.
In most leasing contracts, the security deposit is equal to one month's payment rounded up to the nearest $50, explains Oren Weintraub, president of Authority Auto. So if your monthly payment is $425, the security deposit is $450. If you agree to pay two or more fully refundable security deposits, the leasing company reduces the interest rate (which is called money factor when leasing) because its risk is lower. A lower money factor means a reduced monthly payment.
This option isn't available for all leasing programs, and many lenders limit the number of security deposits that you can use. However, if you have the money and you are not investing it, this strategy could save $1,000 or more over the three years of the lease. But Cavano adds: "It actually flies in the face of what leasing is all about — keeping your money liquid."
2. One-pay leasing works for some.
A similar strategy to the multiple security deposits is the one-pay lease. A major benefit of leasing is that you know exactly what your total automotive expenses are for the length of the lease. For example, if you paid zero drive-off fees and your monthly lease payment was $350, then your total cost over three years would be $12,600. In a one-pay lease you make all the payments upfront, and the leasing company reduces your interest rate. So rather than paying $350 a month, you would pay less interest and the equivalent of $320 a month for a total of $11,520 in one lump sum. That saves $1,080.
The one-pay lease works best for people who have a lot of money, but little established credit, says Cavano. This could be a person entering the country for a short period of time, such as a student. Anyone considering this approach should also consider whether they could invest the lump sum of money more profitably elsewhere.
Weintraub occasionally mentions this strategy for people who are intending to pay cash for a luxury car. Rather than making a larger cash payment to own the car, he suggests arranging a one-pay lease, then paying for the rest of the car at the end of the lease. This allows the person to maintain some flexibility and also hold on to their money longer.
3. Continue your lease month-to-month until you are ready to get your next car.
Some people panic as the end of their lease approaches because they don't know what car they will get next. But Swapalease Executive Vice President Scot Hall points out that most leasing companies will allow you to keep the car on a month-to-month basis.
You don't want to do that for too long, however, Cavano points out. If you ultimately decide you want to buy the car you've been leasing, you might have to pay the original residual figure, which will now be outdated, and possibly too high.
Here's why: Leasing companies set the residual figure at the beginning of the lease, and it is a prediction of what the car will be worth at that time. Forecasting company ALG sets lease residuals as a percentage of the original value of the vehicle. So, if you extend the lease, and then buy the car, you are buying the car for what it was worth several months previously.
Still, as long as you go month-to-month as a short-term fix, it can help you buy extra time in your current car. After all, it's never a good idea to buy a car in a hurry.
4. It's easier than you think to transfer your lease before the end of the contract.
According to SwapaLease's Hall, it is possible to transfer about 80 percent of leases with no strings attached. SwapaLease and rival LeaseTrader find a person to take over the lease and, for a fee, handle the paperwork.
But even after a person transfers the lease, approximately 20 percent of leasing companies require the original leaseholder to retain some "post-transfer liability" for the vehicle, cautions Hall. This means that the name of the person who originated the lease remains on the contract and the original leaseholder can be held financially responsible for unpaid balances. These could result from excess mileage charges or lease-end fees.
Still, if you have had a change to your life situation, and it is suddenly necessary to end your lease, transferring the contract is an option that wasn't available until recently. Using these online leasing sites is easy and minimizes financial loss.
5. Customize the mileage to suit your needs.
Often, people say "'I can't lease because I drive too many miles,'" says Cavano. "But really, it's a situation of pay-me-now or pay-me-later." What he means is that the miles you put on a car decreases its value, so you are paying for the miles whether you bought a car instead of leasing it and whether you pay upfront or at the end of the lease.
Cavano says it isn't unusual to see lease contracts of 30,000 miles per year. Often, they've been written for salespeople who use their cars in their jobs. In the past, it was cheaper to buy miles upfront than it was to pay the penalty at the end. But these days, Hall sees the same cost for upfront and back-end miles. However, if you pay upfront, it might make it easier to budget for that expense. Keep in mind that if you don't wind up driving all the miles you bought, you won't be reimbursed for them.
Bonus strategy: If you bump up the interest rate, you can waive the acquisition fee.
This might be available through some leasing programs and it's a strategy that works best for people who begin a loan thinking that they might want to purchase the leased vehicle halfway through the contract, says Matt Jones, a senior editor at Edmunds.com and a former finance and insurance manager for American Honda Motor Co.
Negotiate your best price on which to base the lease. Then, ask to pay a higher interest rate — which will only raise your payment a few dollars a month. Some leasing companies will then waive the acquisition fee, which is typically about $650 and which shoppers pay at the beginning of a lease to cover various administrative costs. This means that a year or so into the lease, you can buy the car as planned and save the cost of the acquisition fee.
