With technology evolving the way it is, it’s estimated that over 70% of buyers do some form of research before walking into a dealership.
Making an investment up front to understand leasing vs financing will pay dividends when you pull the trigger to move forward with your purchase.
Choosing not to do research and understand what you’re signing is a sure fire way to get burned. Whether accidentally or intentionally. Think of it this way.. How often do you buy a vehicle?
Which Vehicle Do You Want to Lease?
When you’re ready to move forward with your purchase it’s important to know exactly what you’re looking for before you visit the dealer.
Choosing the right vehicle for your needs is important. Understanding which vehicles have better residual value will also ensure you have the lowest possible monthly lease payment.
If your chosen vehicle typically has a high resale value, your monthly payments will be lower.
Search trusted sites such as Edmunds to see if the vehicle you like has a high recall rate or negative reviews from drivers.
How Much Will You Pay?
Whether you choose to lease a vehicle or finance one, there’s always room for negotiation with the dealer. If the vehicle is in short supply and the demand is strong you most likely won’t have much room to negotiate.
In order to know how much you can negotiate you’ll need to know the dealer’s invoiced price of the vehicle. This is the price that the dealer pays the manufacturer for the vehicle.
The sticker price minus the dealer’s invoiced price is the amount of potential profit the dealer has in the vehicle. Luxury makes such as Audi, BMW and Lamborghini will have more profit margin than Honda and Ford.
While it’s important to note that even if you know the invoice price, the dealership is still a business. You can negotiate all you’d like but remember the dealership needs to make profit to stay in business.
Where To Negotiate?
It’s always a good idea to work up from the dealer’s invoice price and not the MSRP sticker price. How much you offer the dealer will depend on the brand and their profit margin. You’ll be able to get a better deal on a $30,000 vehicle with a 10% profit margin than a $30,000 vehicle with a 6% profit margin.
While numbers vary, there are a few guidelines you can work off of.
MSRP Up To $35,000 – It’s fair to offer a dealer $750 over their invoiced price if the vehicle is on their lot and $1,250 over invoiced price if they have to bring it in from another dealer.
MSRP Up To $55,000 – It’s fair to offer a dealer $1,250 over their invoiced price if the vehicle is on their lot and $1,750 over invoiced price if they have to bring it in from another dealer.
MSRP Over $55,000 – Expect to pay $2,000 or more over the invoiced price. There may be a bit of wiggle room if the vehicle is on the dealer’s lot.
With these guidelines in mind, remember the principal of supply and demand. If there’s a larger demand for the vehicle you probably won’t have room to negotiate.
Getting The Best Deal
If you’re looking for an even better deal on a leased vehicle it’s worth looking at vehicles from the previous year. They’re still new and have the added benefit of coming with some very generous rebates.
At the time of writing this article, a 2019 Ford Escape SE comes with a $1,000 factory rebate while a 2018 Ford Escape SE comes with a $3,500 rebate. That means you’ll end up paying under the MSRP sticker price, not including other incentives from the dealer.
While you may not have flexibility on the color or certain features in the vehicle, buying a previous years model or a dealer demo is a great way to save more on your purchase.
Look For Promotional Deals
Manufacturers will typically offer limited time leases if they have inventory that isn’t selling as well as they expected. These promotional deals usually only include vehicles that are a certain trim level or style and there may be other conditions when you lease.
How Much Can You Afford?
Whether you choose to lease or finance, it’s important to know how much you can afford before walking into a dealership.
If your monthly budget is $300 and you want a 4 year lease that means you’re looking at a vehicle with a max MSRP of $24,000. (Assuming a 40% residual after 4 years. A $300 x 48 months = $14,400 depreciation and finance)
When you do move to the negotiation phase with the salesperson who is helping you, it’s important to negotiate based on the selling price and not on the monthly payment.
Summary
When you’re ready to make a buying decision, make sure that you’ve researched the vehicle. Know what you can afford and understand how leasing works by reading through this website.
