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Car Leasing Tips

During the course of years as counsel for consumers I have encountered a number of clients who have leased vehicles without understanding how a lease works and how to negotiate the lease to save money.

Under a lease the vehicle is sold to a finance company who then leases the vehicle to the consumer. The dealership is paid for the vehicle by the finance company. Dealerships love customers who lease because the dealerships often make more money on a lease. This is because the consumers don’t know how the various entries on the lease affect them and the dealership.



In a lease they are several key concepts the consumer must be aware of. First of all the ultimate lease amount will be based upon the Gross Capitalized Cost and the Residual Value of the vehicle. The Gross Capitalized Cost is the Agreed Value of the Vehicle plus the cost of any service contract, insurance, lease or loan balance on any trade in vehicle. The higher the Gross Capitalized Cost the higher your monthly payment. The residual value is the value of the vehicle at the end of the lease.

The consumer can and should negotiate the Agreed Value of the vehicle. The lower the agreed value the lower the Gross Capitalized Cost and hence the lower your lease payment. The biggest mistake that I see consumers make is that consumers do not negotiate the vehicle value. Many leases that I see call for the agreed value of the vehicle to be equal to the Manufacturer’s Suggested Retail Price ( MSRP)for the vehicle. This costs the consumer money two ways. First, there are two components to your monthly lease payment a rental amount and a depreciation amount. The rental amount is a factor which is multiplied times the Gross Capitalized Cost. The higher the Gross Capitalized Cost the higher the rental amount. Secondly, the depreciation portion of your monthly lease payment is computed by subtracting the residual value of the vehicle from the Gross Capitalized Cost. The higher the Gross Capitalized Cost is the greater the depreciation, hence, the larger your lease payment. The lower the agreed value of the vehicle the lower your lease payment. Any dealer who tells you otherwise is lying to you to increase their profit.

You should always request that the dealership itemize the Gross Capitalized Cost. I have had several cases where the dealership added a loan or lease balance from the consumer’s trade in vehicle without the consumer being aware of this because the Gross Capitalized Cost was not itemized. The consumer was paying for the outstanding loan or lease balance on the trade in vehicle through the lease without knowing it. You have a right under Federal law to have the Gross Capitalized Cost itemized.

You should attempt to negotiate the residual value. However, some financial institutions will not permit this. You should always negotiate the Agreed Value of the Vehicle and ask for an itemization of all items added to the Agreed Vehicle Value to arrive at the Gross Capitalized Cost. Some banks charge an acquisition fee which is included in the Gross Capitalized Cost. This fee is typically between $ 300 - $ 600.

Finally, you should be mindful of excess mileage charges. No matter what the salesman says the excess mileage charge is the amount in the lease document. Review the lease carefully for such charge an only sign the lease if you will not exceed the mileage or can truly afford this charge. Excess mileage charges sound small, often ten cents a mile, but can really add up over a long lease.