Lease a Car with the Option to Buy

Leasing is a good option if you don't have the money for a down payment, or if you want to avoid a car loan. With a lease, you can get a new car and pay monthly lease payments. At the end of the lease period, you have the option to buy. You should do your homework ahead of time so that you can negotiate a lease with confidence.

Steps

Finding a Car

1. Estimate what you can spend. You'll save yourself a lot of time and money if you figure out ahead of time what you can spend each month on the car. Make a rough estimate. If you don't know, you can create a budget and see how much money is available for your lease.
2. Search inventory online. Most dealerships have their inventory online. This makes it very easy to view what cars are available. You can also see what prices the dealers are asking for. While browsing, consider the type of car you want.
   • You can also stop into a dealership and walk around to look at vehicles. However, a salesperson will probably come out to talk to you, which you might think is a hassle.
3. Use a lease broker instead. A lease broker isn't tied to any single dealership. Instead, they can search around for you and find a vehicle and lease that fit your requirements. You can search for a lease broker on the Internet or in your phone book.
4. Take cars for a test drive. A test drive lets you assess how the car handles. Pay attention to how comfortable you feel in the car. Is there enough legroom? Do you find the seats comfortable? Also ask the dealer about safety features, such as anti-lock brakes or side air bags.
   • During the test drive, don't mention that you are thinking of leasing. Instead, let the dealer think you intend to buy the car.
5. Find out the car's wholesale value. This is the amount that the dealership paid for the car, and it will probably be the least amount a dealer will accept. You can find the wholesale value from Consumer Reports.

Negotiating a Lease

1. Negotiate the purchase price. The amount you pay monthly for your lease will be based on the sale price. You should go back and forth with the dealer as you negotiate. Start low, by offering an amount close to the wholesale price. The dealer will reject it, but you should eventually end up somewhere between the wholesale price and the sticker price.
   • Some dealers try to get you to focus on the monthly payment amount, but you should remain focused on the purchase price.
2. Settle on a down payment. When you lease, you need to give the leasing company a sum of money, just as you would if you were buying the car. This sum is called a “capitalized cost reduction,” but you should think of it as a down payment. Generally, this amount should be much lower than the usual 20% down payment when you buy a car.
   • The higher your down payment, the less you will pay each month.
   • Some dealers offer zero down payments as an incentive to get you to lease.
3. Check what fees are charged. Dealers will tack on many fees, so you should have them put in writing and review each one. Consider the following fees:
   • Excess mileage fees. Generally, you can drive only {{safesubst:#invoke:convert|convert}} before the excess mileage fees kick in. Check how high the fee is. It can go up to 25 cents a mile.
   • Fees for wear and tear. You'll be charged for dings, scratches, and wear on the brakes or tires.
   • Early termination penalty. You might want to get out of the lease early for some reason. You'll need to pay a penalty for that privilege.
4. Look for hidden fees. There are many fees that surprise people. Read your lease agreement carefully to see if you are being charged the following. You can object if you think a fee is too high.
   • Bank fee. This is an amount the bank charges on every lease. It might be several hundred dollars, and is usually rolled into your down payment.
   • Doc fee. This fee is charged for document preparation and is often rolled into the down payment.
   • Disposition fee. You're charged this fee at the end of the lease if you choose to return the car and not buy it. Typically, the amount is equal to one month's lease payment.
5. Look for a purchase option. Most leases come with a purchase option, but double check that it is there. It should read something like the following, “You have an option to purchase the vehicle at the end of the lease term for $14,000 and a purchase option fee of $250.”
6. Sign your lease. Review it thoroughly, making sure you understand everything in it. If you have any questions, ask. You'll need to make your down payment and a first month's lease payment at the same time. The lender might also want a security deposit.

Buying the Car

1. Wait for the dealer to contact you. If you call them first, then the dealer is less likely to negotiate with you over the price. Instead, sit back and wait for the dealer to call.
2. Judge the car's condition. You probably don't want to buy the car if it's badly beaten up. Walk around the car and assess any wear and tear. You will also need the car's condition to estimate its market value. Use the following guide:
   • Excellent. The car looks brand new and shouldn't have any rust. Fewer than 5% of all used cars will be excellent.
   • Good. Your car has no major flaws and no mechanical problems. There should be very few dings or scratches and no rust.
   • Fair. The car probably has many defects, such as problems with the engine or rust, but they should be repairable. Often the tires need to be replaced.
   • Poor. A car in poor condition has extensive rust or mechanical issues that cannot be fixed.
3. Estimate your car's market value. The market value is the amount you would pay if you were to go to a dealer and buy this car. You can estimate the value by using one of the many different websites online: Edmunds.com, NADAguides.com, Cars.com, and Kelley Blue Book.
   • The value will depend on your mileage, as well as your car's condition. Visit multiple websites to get a good sense of what the car is worth.
4. Compare the market value with the residual value. The residual value should be stated in your leasing agreement. It is the amount your leasing company agreed the car would be worth at the end of your lease term. If you decide to buy the car, the dealership will probably expect you to pay this amount, plus a purchase-option fee.
   • Your residual amount might be higher than the market value of the car. In this situation, you can try to negotiate a lower purchase price or walk away.
   • If the residual amount is lower, then congratulations! You are getting an excellent deal on a used car.
5. Get pre-approved for a lease-buyout loan. Stop into your bank or credit union and discuss obtaining a loan. You can also contact online lenders such as Capital One Auto Finance. Look for the lowest interest rate and other favorable terms.
   • Your pre-approval will only be good for a limited amount of time. Because of this, you shouldn't get pre-approved too soon.
6. Ask the leasing company if they'll lower the purchase price. As the end of your lease approaches, you can expect the leasing company to call you up and ask what you intend to do. If your market value is lower than the residual value, you can ask them to sell the car for less. Larger leasing companies refuse to negotiate, so don't be surprised if they say no. However, smaller companies might be willing to negotiate.
   • The key is to act casual and not come across as in a hurry to buy the car. Say you intend to turn the car in because you think the residual value is too high. This might spur the leasing company to negotiate.
   • If the leasing company won't lower the cost, ask if they will reduce or waive the purchase-option fee.
7. Obtain your loan. Return to the lender that pre-approved you and go ahead with the loan. Remember to review its terms once more before you sign.
   • The lender should transfer the money directly to the leasing company.

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