Leasing Guidelines

Everything about a lease is negotiable," says Jack Gillis, public affairs director for the Consumer Federation of America, "though it may be a little unorthodox because the industry doesn't expect you to negotiate." If you decide to lease, make sure you know all of the costs involved to ensure it's a good value. Additionally, keep the following tips in mind if you've decided to lease:

• Whether you're buying or leasing, set up a competitive bidding environment to get the lowest price. Shop around for the best leasing terms. Competition is the only effective means the car buyer has to get dealers to lower their price.
• Make sure you negotiate the purchase price — or capitalized cost — and not just the monthly payments.
• Know the residual value used to calculate how much depreciation you'll pay, as well as the purchase price you'll pay if you decide to buy the car. In most (but not all) leases, these will be the same figure. Also know the money factor (similar to an interest rate) you're paying. For a comparable interest rate, multiply the money factor by 2,400.
• To find the most advantageous deals, use leasing software to analyze the scenarios. LeaseWizard.com offers software that allows you to compare deals using actual residual, money factor and security fee data straight from lenders.
• Make sure you know all of the fees involved. Expect at least an initial acquisition fee and a disposition fee when turning in the car. Remember, these leasing fees are negotiable.
• All leases should include GAP insurance, which covers the difference between what the car is worth and what you owe on the lease. Put another way, if the car gets stolen or totaled, the lease gets terminated early and you owe the bank thousands of dollars. GAP insurance will cover this cost.
• Think twice before putting any money down on a lease. Michael Kranitz, creator of LeaseWizard.com software and author of "Look Before You Lease: Secrets to Smart Vehicle Leasing," explains the difference between cash down, which is money used to cover initial leasing fees, and a down payment, which is paying down the capitalized cost in order to reduce monthly payments. The latter is not worthwhile. "As a general rule, you lease so you don't have to put money down," says Kranitz. You're better off using that cash elsewhere.
• Lease for the shortest term you can afford. Short-term leases make the most of leasing's primary advantage — getting a new car frequently. It's imprudent to pay for a car for four or five years without eventually owning something. Don't keep the lease for longer than the car's original bumper-to-bumper warranty.
• When a dealer tries to sell you undercoating, window etching or a security system, just say no. It's not your car. Why buy these extras for the bank?