For years, the smart money said car leasing didn't pay. But with soaring auto prices, falling interest rates and new tax laws, many Americans are rediscovering this alternate route to automobile heaven.

The question is, will those who wander down this road get fleeced by fast-talking lease salespeople? Or will they beat the system and get a good car at a price that fits their budget?

As a former car salesman, I knew what went on in the dealership sales rooms. I also knew that the same money grabbing-tricks would probably be used in car leasing. This meant the unwary person could lose thousands of dollars. But I also felt that the person who did a little homework could save thousands of dollars.

Reading this article and using the Lease Calculator will take you only a few minutes. What you learn can save you thousands of dollars. But even more than that, it will put you in control during your encounter with the lease salesperson.

But before we go any further, here are a few thoughts about the advantages of leasing. This may help you if you are still trying to decide if leasing is for you.

Leasing Advantages

  1. Leasing allows you to drive "more" car at a lower monthly cost. In some cases, quality cars (BMW, Mercedes, Honda) can be leased for lower monthly payments than cheaper cars which quickly lose their value.
  2. Leasing frees your money so you can use it for investments or other purposes. often, monthly payments are $100 to $200 less than car buying. This money can then be used for other things.
  3. Leasing lowers the initial costs of getting a car. There is no down payment so you can keep from $2,000 to $4,000 in your pocket. Also, sales tax can be rolled into the monthly payments.
  4. Leasing provides a tax break for those that use their cars for business. This is important since interest on car loans is no longer tax deductible.
  5. Leasing increases flexibility. There is no trade-in at the end of the lease term. And the leased car can be purchased at a predetermined price at the end of the lease.
  6. Leasing provides a better selection of cars. This is because leasing companies can order your car from a variety of dealerships.
  7. Leasing makes car shopping easier. Most of the shopping can be done over the phone by getting competitive rates from independent leasing companies and banks.

Are you still on the fence about whether to lease?

Then you should ask yourself these following questions:

  1. Is it really necessary to drive the latest model car, even if you can't afford to buy it?
  2. Will you be in the same or better price bracket at the end of the lease?
  3. Do you baby your cars? Or do you occasionally spill Cokes all over the upholstery?
  4. Are you willing to negotiate and shop for a good lease deal? or will you lose control when you get a whiff of the new car smell?
  5. Are you disciplined enough to invest the money you save on a monthly lease? Or will you dribble it away on bad movies and dinners out?

As you may have guessed, the answer to the lease vs. buy question is not just dollars and cents. It is a question of taste. If you really like driving a brand new car, and want that feeling once every three years, then go ahead and lease. If cars aren't that important. Then buy a reliable one, and drive it into the ground. It's that simple.

Before I close, let me just repeat that the simple act of reading these articles, and grasping a few key concepts, will save you thousands of dollars in your lease contract. If you are successful, you will experience the pleasure of not only untangling a needlessly complicated system, but you will also take control of your own life. Isn't that what it's all about?

Remember, only the prepared win!


When you lease a car, you only pay for the time you keep the car.

During the time you keep a leased car, it loses value. You are charged for that loss in value (plus some profit for the manufacturer and dealer, of course). That, in a nutshell, is car leasing.

Beyond that simple statement (you only pay for the time you keep the car) there are three terms you should understand. These terms are parts of the complicated lease formula and they have a big effect on your monthly payment. You should understand these three terms and watch them closely as you shop for and negotiate for a lease car. The other parts of the lease formula are either set amounts or relatively inconsequential.

Three Leasing Terms

  1. Cap Cost. Also called the "Capitalized Cost," this is basically the price of the car plus several leasing-related fees, including dealer profit. You should negotiate this figure as if you were buying the car.
  2. 2. Residual Value. This is the leasing company's prediction of the car's value when you return it to them at the end of the lease. Good cars lose value slowly; bad cars lose value quickly. This is why leasing allows you to drive more car, for less.


    • Example: an Audi and a BMW are both worth $34,000 when they are driven off the lot. But the residual value of the Audi is 33% while the BMW's is 52%. At the end of the lease the Audi is worth only $11,560 while the BMW is still worth $17,680.
  1. Lease Factor. Also called "Lease feel' or "Money factor," this is the interest rate of the money used to finance the car. Instead of expressing it in a percentage, leasing companies state it as a multiplier. In other words, .00333 is about 8%

Seven Steps to a Good Lease Deal

  1. Research. Find a car that holds its value. Finding cars of value is essential in lowering monthly payments.
  2. Test drive the car and the salesman. Be sure the car suits your needs as well as holding its value. While you're in the driver's seat, get a sense of whether you can handle the salesman and the dealership pressure.
  3. Figure your monthly payment. Get all the figures, design your "good deal" -- then go after it. Don't wait for the salesman to tell you what you have to pay.
  4. Shop the market. Find your "good deal" by calling dealerships, banks and independent leasing companies. Then go where the numbers look best.
  5. Negotiate the Best Deal. Lower the dealership offer with a combination of car buying tactics. Make sure the contract is tailored to your needs with mileage protection and the right amount of insurance.
  6. Check the contract against the verbal agreement. Make sure the savings you negotiated are carried through closing in the 'IF & I Room" (the Finance and Insurance Room where the contract is drawn up). Don't rely on the salesman to interpret the contract -- read it yourself.
  7. Protect your deal throughout the lease. observe all the terms of the lease deal, and know what the car is worth at the end of the lease agreement. If it has held its value, and you can get it at a good price, buy it, and sell it to a private party!