This guide is meant to show you through the auto leasing process. I put this together based on my past experiences with leasing. Some experiences were good, others were less than perfect. Overall, I learned a lot about the leasing process and I think these recommendations will have a positive impact on your leasing experience. If I missed anything or if you disagree with some of my steps, please feel free to leave a comment.
Finding the Car
I usually start my research by visiting Edmunds.com and CarsDirect.com to get model/trim/options/pricing information about the car I intend to lease. You need to know exactly what you want because each option can change the price dramatically. CarsDirect.com does a better job letting you pick the correct combination of options for a specific trim.
Get Your Credit Score. Knowing your credit score is important because it qualifies you for the lowest money factors. Typically, I let my dealer know that my credit score is “XYZ” and I am looking for car “ABC”. Telling the dealer your credit score informs the dealer in advance that you are prepared to make a deal and you aren’t wasting their time negotiating. Since you don’t want your credit run multiple times from dealer-to-dealer, finding out ahead of time will keep your credit score from getting hit with too many inquiries (personal inquiries do not hurt your credit). Typically, I don’t even deal with dealers that request to run your credit before working with you or to get a test drive. You let them run your credit ONLY when the negotiation is complete and you are ready to begin paperwork. If you credit is less than perfect, leasing is not for you because you cannnot qualify for the lowest rates. In some cases, you won’t even qualify at all. Lease loans usually have stricter approval guidelines than purchasing loans. A good place to get a FREE 30-day trial of your FICO score is myFICO.com. You can sign up for it and cancel any time before the 30-day trial period ends without getting charged. I personally used it to monitor my credit score every month because I am pretty paranoid about my credit.
Locating a Dealer. Once you are set on the car, you have a couple of options. You can go to the manufacturer’s web site to search for all local dealers OR you can use sites like Yahoo’s Autos Quotes, or Edmunds.com to find local dealers.
Email Dealers, Don’t Call or Visit Dealerships. Try to email your dealer to locate the car with the colors/options you want, let them know the term you want (months and miles per year), then ask for the following:
- MRSP (to make sure it doesn’t have ‘extras’ on it).
- Sale Price (start with invoice, or $500 below invoice and go from there)
- Money Factor
- Residual Value
- Acquisition/Bank Fee
- Dealer Doc Fee
- Other Fees (such as DMV, tire, etc…)
- Is there a disposition? Gap coverage? (these are important things to know!)
- Taxes (depending on which state you live in, find out if you have to pay those up front and/or if you need to pay for the entire car or just the depreciation)
Once you have those numbers, you can calculate your own payments to see if there are any discrepancies between your numbers and theirs.
If the payments are still higher than you like, ask for the option to make “multiple security deposits” or MSDs. You basically pay security deposits to lower the Money Factor. This will lower the interest paid on your lease but increase your up-front costs. The good news is that you will get that money back at lease-end. If the numbers are still not to your satisfaction, try having the dealer thrown in some free oil changes to help you offset the costs. Now remember, if you trade-in or sell your car before your lease is up, you will LOSE your MSDs! If you put MSDs down, you better make sure you wait until your lease term ends.
Only work with dealers that are up front with you. A pleasant leasing experience is worth something, believe me. It will make you feel better bringing the car in for service and you won’t feel angry driving around in your car because you feel like you got ripped off.
Avoid “All-In-One” Quotes. By those I mean “$1999 down, $399/month” type of quotes…the ones the dealers love to quote you. You want to avoid those because it’s easy to start losing track of what you’re actually paying for since everything is bundled and nothing is itemized. If this seems like nit-picking, it is, but you must realize that for every $100 paid in bogus charges, you are doing so with interest (and maybe even tax) if you roll it into your lease payments.
The Numbers look Good, Now What? If you haven’t gone in for a test drive, go ahead and schedule a visit to your dealer. You will probably want to visit the person you’ve been dealing with via email, that way, he or she will already know you and won’t go into the “sales-mode” and you can enjoy your test drive.
Got a Trade-In? If you do, negotiate after the new car and keep it separately. I usually use this as a “deal-breaker” if the offer isn’t good enough (to see if they will bump out the trade value to make a sale). If you don’t like the offer, remember you can always get it appraised elsewhere or sell it on your own. You can get a good idea as to how much your trade is worth to a dealer by going to Edmunds.com and appraising your car at “average” condition to get a more “realistic” idea of the value of your car. If you are still financing your car and the offer is lower than the balance of your loan, you will have to pay the difference. If its more than your loan, the dealer will either give you the option to apply it to your new car or cut you a check (have them cut you a check). If you are trading in a lease, the process is generally the same. The only difference is that you need to find out what your “Buyout” is from your bank and see how close the dealer offer comes to it. If your leased vehicle is a popular model, has low miles and is in great condition, you could get some money back.
What Should I Pay Up Front/At Signing? I normally advise people to pay the 1st Month Payment, Acquisition/Bank fee, DMV fee, Doc fee and Tire Tax (Some states will ask for the sales tax to be paid upfront instead of monthly). Sometimes you may be assessed other fees, so double check and make sure they aren’t bogus. Try not to put any money towards cap cost reduction, after all, this is a lease. In the event of an total loss accident or theft, you could lose a significant part of all the money you have put down (or all of it).
Beware of the Finance Guy/Gal. The Finance Guy/Gal is the dealer’s last ditch effort to sell you stuff you may or may not need. Seriously, do you really need anything more than the standard bumper-to-bumper warranty on a lease? You don’t need Lo-Jack on a lease, specially if the lease will offer GAP coverage, so there isn’t a reason to get something like that.
Make sure you READ the papers BEFORE you sign. You got time, after all you negotiated online before you showed up to the dealership, so READ, make sure the numbers are correct and ask questions. Once you sign, the deal is binding by those terms.
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@wp. Ick! cap reduction
LOL. Regardless, I think you managed to knock off so much cash off the MSRP that cap reduction is rather inconsequential. The deal itself is pretty darn good. My guess the payments would be around $460 with tax if you only payed inception fees. Darn good WP!!! Congrats! So when do I get to see pics of the car? Haahaa.
Great site, extremely informative. I’m looking to buy a BMW 328xi and they are quoting me a .0026 money factor. As a general rule of thumb, for every $500 in MSD, how much money factor can I expect to peel off? I’d like to go in with $2K in MDS’s, but not sure how much MF that will buy me. Thanks!
Hi maggie. welcome to the site. Based on recent feedback each MSD should buy down the MF by about 0.00007 (this may vary from bank to bank). So with $2000, you are looking at 0.00028 or 0.672%. The deposit is fully refundable at lease end and in the event of theft or total-loss accident, it will also be refunded.
@Maggie
my brother was going to put cash down to lower his payments on his SUV $3k more than just up front fees. He did the MSD route instead, (((THANKS G))) long story short a few months later his ride got creamed (he’s ok) INS./gap etc. took care of it all + he got his $3k sec dep back.
G – Love this site and wish I found it sooner. I used to consider myself a pretty good lease negotiator and thought that I’ve put together some pretty good deals for me and my family, until I saw this site!
I have two questions for you:
I’m working on a lease right now for a 2009 Acura TL SH-AWD w/ Tech. Worked out a price of $36,320 (MSRP was $42,995 and every site is telling me that their invoice is $38,812). Taxes are $1346 (7% in NJ and he told me they are due on the entire cost of the car, not just the depreciation portion), doc fee of $398, bank fee of $595, MV fee of $299 (and a “GOVT FEE” of $316, but I’m not sure if the MV costs are part of this). For 36 month, 15K miles/year, I got the residual at 51% (which I’m not happy about). My total out of pocket is $3,000, but they’re going to cut me a check for $1050 to cover the last 3 payments on my current Maxima lease) – so essentially, my OP cost is $1950. With that, my monthly payments are $544/month… What are your thoughts on that deal?
The second question is: Acura told me that, because it is not an Acura/Honda, they cannot take the car, and can only give me money towards the outstanding payments – is this true? Or, can they actually fully take the car off my hands? As a side not to that (and I learned this from reading through previous blog posts), I’m paying for 45,000 miles on my Maxima lease (15K/year x3) but with only 3 months left, I’m at 35,000 miles on the car. What can I now do with that equity? (I guess I actually had three questions – LOL!)
I really appreciate your advice and your overall effort in putting such a site together… thanks.
Additionally, this guy told me that the residual percentage is applied to the MSRP and not the cap cost – is that true? (fourth and last question).
@s1nj. awesome, glad you like the site. Lets see if I can address all your questions here:
1) Looks to me the taxes are being paid just on the depreciation portion of the car, despite the fact that the dealer is telling you otherwise. Not many states do this and I’m pretty sure NJ isn’t one of them. They do however, require that you pay the taxes upfront from what I hear, just like NY. Still, $1346 in taxes is not 100% of the car’s cost since that’s only about half. Sale price is solid since its very close to what my dealer here in So Cal is offering. Unfortunately, I can’t quite comment on how much how much the monthly should be since I don’t know the money factor the dealer is using for this deal. I will say this, assuming the MF is .00184 (which was last month’s MF), your payments should be 493 per month, this excludes your taxes and inception fees. If you add up your inceptions and taxes, your “due at signing” cost is around $3447. This includes all fees, taxes and your 1st month payment. If you start “peeling the layers” so to speak, you will start to realized that there’s some money being rolled into your lease since your payments are over $50 more than expect. That’s about $2000 extra since every $25-$30 per month is about $1000 added into your loan. I will say this, your deal has a lot of funny math in it, making it confusing as to who is paying what because everything is being rolled in and there isn’t much explanation as to what is what and who’s paying it. They may be cutting you a $1050 check, but that’s essentially being “loaned” to you with interest + tax.
2)It is true that Acura cannot accept a Nissan as a turn-in. They can offer to buy it. Just ask them to appraise it and see how much they are offering. Then call your Maxima’s lender to see how much your payoff amount is. Since you’re over $10k under, check around to see if you can another dealer to offer you enough to either break even or lose less than the “three payments” you have left.
3)If you get any equity, you can have the dealer cut you a check for it and they can payoff the car for you so they can resale later.
4)Yup residual IS applied to MSRP not the cap cost. The key is to make sure the cap cost is as low as possible. Trust me, it is actually better to have it applied on the MSRP, it makes ur lease cheaper. LOL.
Thank you for swinging by and sharing your questions with everyone.
how my advice helps
3)
G,
I just want to tell you how valuable your website is and how it fills a much needed niche related to the often confused world of leasing.
I am interested in the luxury compact suv market (X3/Q5/GLK350/Tiguan)in NJ and can either begin a lease in August or Sept.
What are your thoughts on this landscape? Do you think I can walk away with any of these for less than $500 a month with no cap cost reduction?
@Russ. I noticed you saw my GLK post earlier today. Yeah right now, the Q5 and the Tiguan may be your best bets. I haven’t seen the lease rates yet, but I suspected they won’t be too different from last months. The Tiguan has generally been lease friendly, I don’t have those numbers yet, but I’ll look around for them. The X3 and GLK350 (which I like a lot as well) are pretty bad right now. The X3 and the GLK350 both qualify for the C4C gov’t program, but if you don’t have a clunker, it won’t really matter. Audi lease rates should be popping up any day now.
I don’t see Mercedes August 2009 C class numbers posted for residuals and mF’s… do you have those?
@Scott. Unfortunately, I don’t. Since the 2010 are officially out, I’m not seeing the 2009s anymore