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How to lease a car in 8 steps
Choosing a vehicle with a strong residual value can help you score a lower monthly payment.
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Setting a budget and understanding the typical costs can set you up for success when you want to lease a new car. But it’s not just a budget that will save you, comparing multiple offers — and using those offers to negotiate down your cost — is also key to finding a good deal. Before you even get started, make sure leasing is really worth the long-term cost.
Should I lease a car?
Leasing can be a good short-term solution when you need a car. It gives you a lower upfront and monthly cost than a car loan. But it’s not a great long-term solution.
You could end up paying more in lease payments over a decade than you would have if you bought the car. And you might face steep penalties if you put on too many miles, damage the vehicle or want to return it before the contract is up.
If you think leasing isn’t right for you, check out our list of top auto lenders to help you finance your next ride.
Step 1: Create a budget
Figure out how much you can afford to pay monthly for your lease. Add up your mortgage or rent payment, utilities and other recurring monthly expenses and subtract that from your monthly income after taxes. This will give you an idea of how much money you have left over each month to put toward your lease payments.
Step 2: Familiarize yourself with the costs
Keeping these costs in mind when you begin shopping can help you find a make and model that fits your budget.
- Cap cost. Also known as the sale cost, or capitalized cost, this is the prince that your car would sell for if you were to buy it. Typically your lease payments are based on the sale price, so the lower, the better.
- Residual value. The amount of the sale price you’d pay if you decide to buy the vehicle at the end of your lease, typically expressed as a percentage. Higher percentages can give you a lower lease payment.
- Money factor. Similar to an APR, this represents how much you’ll pay per year for the lease. You can find the equivalent interest rate by multiplying the money factor by 2400. For example, a 0.00125 money factor is equivalent to a 3% APR.
- Drive-off fee. A fee you pay to start your lease, which can include a security deposit, the first month’s payment, documentation, licensing and registration fees and sales tax. These vary depending on the dealership and your state, but typically you don’t need to spend more than $2,000.
- Gap insurance. Most dealerships require you to have gap insurance. This covers the car if it’s damaged or stolen and can cost between $20 and $30 a year.
- Lease term. While not a cost, this is how long you’ll be making lease payments — and the money factor. Lease terms typically run from two to three years.
- Trade-in value. How much your current vehicle is worth, if you want to trade it in at the dealership for a lower-cost lease.
- Disposition fee. A disposition fee covers the expense of cleaning, making minor repairs and selling your vehicle. It may be negotiable, but you should still expect to pay anywhere from $200 to $500.
- Excess mileage fee. Usually a lease covers 12,000 to 15,000 miles per year. If you go over, you pay a fee per mile, sometimes as high as $0.15 and $0.20 per mile.
- Lease termination fee. If you choose to end your lease before the term expires, you may be responsible for a lease termination fee on top of everything else you have to pay. It could cost you several thousand dollars to break your lease, so only do so as a last resort.
- Acquisition fee. Also known as a bank fee, the acquisition fee is what leasing company charges to set up the lease. It can be anywhere from $400 to $900 and is typically bundled into your monthly payments or the drive-off fee.
There may be additional costs, like a down payment. But these are the most common numbers you’ll come across.
Step 3: Research and compare cars online
If you don’t already know what kind of car you want, take the time to carefully research what’s out there. Use the following resources to help you make your decision:
- Auto valuation and research companies. Look up the sales price of a model you’re interest in on Kelley Blue Book, Edmunds and the National Automobile Dealers Association (NADA) to see how much you might expect to pay for a lease for certain makes and models. If you want to trade in a car, also research the trade-in value.
- Local deals. Check with manufacturers and local dealerships to see if there are any special leasing offers that come with low money factors or don’t require cash down at signing, depending on the model.
- Used car deals. Some dealerships may even have used cars available for lease, so see if any of these fit your style before settling on the latest and greatest model.
You might also want to contact your insurance company once you have an idea of the car you plan on leasing — it may impact your current rates.
Step 4: Pick a lease setup
Like car loans, leases aren’t one size fits all. While different dealerships might have their own special programs, most leases typically fall into two categories.
Closed-end lease
The most common type for individuals, closed-end leases typically allow you to return your car at lease end without worrying about the difference between the residual value of the car and its actual value. You also usually have the option to purchase the vehicle or extend the lease.
Open-end lease
More commonly seen for businesses, an open-end lease puts all the responsibility on the lessee. This means you’ll have to pay the difference between the car’s residual value and its actual value at the end of your lease. So if your car isn’t worth as much as the dealership estimated at the beginning of your lease agreement, you may owe money — in addition to other closing fees.
Step 5: Visit dealerships and ask for quotes
Contact multiple dealerships to gather quotes on the car you’re interested in leasing. Ask what your monthly payment would be for your chosen term and mileage limit, noting the potential money factor and the car’s estimated residual value. You’ll also want to ask about your lease-end options, especially if you think you might want to purchase the car when your agreement is up.
For example, you might tell the salesperson that you want to lease a 2019 Jeep Wrangler for three years, expect to drive around 12,000 miles per year, don’t want to pay more than $1,500 in drive-off fees and want the option to purchase the vehicle at the end of your lease.
Step 6: Negotiate with the dealership
After you’ve gotten multiple quotes, use these as leverage to negotiate down some of the lease costs. Be aware of costs that are subject to negotiation and those that are not.
Costs that you can negotiate
- Cap cost
- Money factor
- Trade-in value
Costs you might be able to negotiate
- Cap cost reduction from a trade-in or rebate
- Disposition fee
- Buy-out price — if you’re thinking of purchasing the vehicle
Costs you can’t negotiate
- Residual value
- Acquisition fee
- State registration and documentation fees
- Sales tax
Step 7: Pick the best lease deal
Once you have quotes from a few dealerships and negotiated as much as you can, choose the one that gives you the most bang for your buck. This might include a cashback bonus, low APR or small down payment — whatever setup benefits you most. In fact, some dealerships will even adjust your offer based on other dealerships, so don’t be afraid to try out your negotiation skills.
Step 8: Finalize your lease
If you’re happy with your lease terms, it’s time to sign the paperwork. Most dealerships also require you to provide proof of insurance at this time.
After the last documents are signed, the car will be yours for the next few years. Just be sure to keep up with maintenance and track your mileage to avoid added fees at the end of your lease.
How to get a good deal on a lease
Here are a few tips to keep in mind to help you find a lease that benefits you the most:
- Research cars with high residual value. Leasing a car that maintains a high residual value can help you secure a lower monthly payment. Online sites like Kelley Blue Book often publish lists of the best cars based on resale value.
- Check for special offers and bonuses. Manufacturers often offer cashback bonuses, low APRs or lower monthly payments on select models. Just make sure you read the terms and conditions before committing: Some special offers reduce the number of miles you can drive each year or require a higher down payment.
- Research the invoice price. You can find a car’s manufacturer suggested retail price (MSRP) on the manufacturer’s website, but you should also look for the invoice price — the amount a dealership typically pays for the car. This is often the lowest price you could possibly pay and can help you during negotiations.
- Prepare to negotiate. Use the quotes you gathered as fuel for negotiations. Ask if the dealership can match a competitor’s quote or offer better terms.
- Understand your options at lease end. Don’t skip over the fine print when it comes to returning your car. Even if you don’t plan on purchasing the car at the end of the lease, you’ll still be responsible for any excessive mileage or wear and tear. Be prepared to negotiate the fees you’ll be expected to pay.
What to avoid
- Making a down payment. Putting more money upfront typically isn’t required, doesn’t result in much savings and can be risky. If you total the car in the first few months, you won’t get that money back.
- Skipping GAP insurance. Even if it’s not required, getting GAP insurance makes sure you won’t have to cover the cost of the vehicle if you get into an accident.
- Leasing as a long-term solution. If you know you’ll need a car for the foreseeable future, consider buying instead. While it might cost more upfront, you’ll eventually only have to pay insurance and maintenance.
- Underestimating mileage. Be realistic about how much you plan on driving, and leave some wiggle room for unexpected trips. If you’re close to the limit, you may be able to purchase more miles at a lower rate by contacting the dealership. But it’ll still cost you extra.
- Damaging the car. Maintaining your vehicle is an easy way to save on lease-end costs. Scratches, dents and a dirty interior can up your disposition fee.
Glossary of common car lease terms
Not sure if leasing is right for you? Consider a car loan
Bottom line
Leasing can be a convenient way to keep things fresh and try out new tech features every few years. Looking into cars with high residual values and comparing quotes from different dealerships can help you snag a competitive deal.
You can learn more about how leasing compares to buying a car outright by reading our guide.
Still on the fence? Check out our guide to the benefits and drawbacks of leasing a car to help you decide.
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