Car Lease – Good Deal or Bad Deal

how to evaluate a car lease dealA car lease always has lower monthly payments than a comparable car loan, for the same car.

Does that mean leasing is always a good deal?

No, not necessarily. There are good lease deals, average deals, and bad lease deals, just like with any kind of business transaction or purchase. How is it possible to tell the difference when presented a lease offer by a car dealer, or when looking at a leasing ad or commercial on TV?

Here’s how it’s done.

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Determining Car Lease Deals — Good or Bad

If you’ve read other articles on this web site you know that car lease payments are based not only on the price of a vehicle but also on lease-end residual value and money factor (finance rate). The formula is explained in the article, Lease Payment Formula.

Therefore, a good lease deal is determined by the combination of these three important factors. The best deals, of course, would include good values for each of these factors separately — low price,  high residual, and low money factor.

Price is the only one of these lease factors that can be negotiated by customers — simply because it’s the only factor that a dealer can partially control. The other factors, residual value and money factor, are set by the manufacturer’s finance company and can’t be negotiated.

However, leasing customers do have some ability to determine residual and money factor.

First, residual value is partly determined by the mileage allowance of a lease. The higher the mileage, the lower the residual value. This means selecting the lowest mileage allowance that matches your driving habits.

Residual value is also determined by the make/model of vehicle.  Popular and reliable vehicles, such as Honda and Toyota, as well as many luxury vehicles have the highest residual values, as a percentage of MSRP.

Second, money factor (finance rate) is lowest for customers with good credit scores. The lower the rate, the lower the monthly payment, the better the deal. You can always check your most current credit score online before you go shopping for a lease.

Third, the best car lease deals are those offered as limited-time lease specials by car manufacturers on certain makes and models. These are nearly always good deals due to a combination of discounted price, high residual value, and low money factor.

The easiest way to evaluate any car lease deal is by using our unique Lease Deal Calculator. You plug in the numbers and get an instant evaluation telling you if the deal is good, bad, or just average.