10 Steps to Leasing a New Car

Car shopping can be intimidating, and leasing even more so, as it has a language of its own. These steps will tell you how to lease a car, including locating and negotiating a good monthly payment. This article will focus on new car leasing only. While rare, it is possible to lease a used car, but we cover that aspect separately. By this point in the shopping process, you should already have a good idea of which car you want to lease, thanks to "What Car Should I Buy?" If you are still undecided, review that article and then come back after you have made your choice. Finally, if some of the terminology you encounter is confusing, consult our leasing glossary.

Steps for leasing a new car

1. Get acquainted with leasing
2. Focus on these key lease figures
3. Determine your budget
4. Check for manufacturer lease deals
5. Locate the exact car you want to lease
6. Use our calculators to get an estimated monthly payment
7. Shop the internet department
8. Negotiate your best lease payment
9. Determine if you're getting a good deal
10. Review and sign the paperwork

1. Get acquainted with leasing

Some people think a car lease is nothing more than a long-term car rental. And although that isn't a completely accurate comparison, it is good enough: A lessee (you) pays money to the lessor (the bank, which is the actual owner) to use the car.

The agreement is set for a certain length of time, usually two or three years. During this time, you're allowed to drive the car for a set number of miles, usually between 10,000 and 12,000 miles a year. You can raise those limits, but more miles mean a higher monthly payment.

Your use of the car and the miles you'll drive will reduce the car's value. The lease is essentially paying for that depreciation. You also pay lease fees and taxes.

You're expected to return the car in pretty good shape when the lease is up. If you return the car with damage — known as "excessive wear and tear" in lease-speak — expect to be charged for it. If you drive more than the allowed miles, expect to be charged for that too.

There are three big reasons why people lease a new car: a lower monthly payment, easy maintenance, and the recurrent novelty factor.

• It's less expensive: With the rising retail price of many of today's cars, leasing is often the least expensive way to get a new vehicle. Leases tend to require lower down payments and lower monthly payments than car purchases. A lease is also a great way to get a nicer new car for less money than you'd have to pay to buy it.

• There's a lower cost of maintenance: Leases typically end before cars require major service or new tires, so maintenance costs are usually low. Leased vehicles are almost always under the original factory warranty, so owners don't have to worry about the costs of repairs — as long as they are problems covered by the warranty.

• You can drive a new car every few years: Some people always want to be in the latest and greatest new car. Leases, typically for three years, offer a faster turnaround time than the standard purchase cycle, which is about six years. Leases are also easier to exit once the lease term is complete. Assuming there are no over-mileage or excessive damage charges, you can drop off the leased car and move on to whatever is next — which probably is another lease. This is a lot easier than buying a car with a long loan period, and tiring of the car before the loan is paid off — especially if you owe more on the car than what it is worth. That's called being "upside down," and it's no fun.

2. Focus on these key lease figures

• Lease term: Edmunds recommends sticking to a 36-month lease, so your car will always be protected by the manufacturer's three-year bumper-to-bumper warranty. Some people are tempted to extend their leases to four and five years to reduce the monthly lease payment. But this means you're investing more money in a vehicle that will never be yours and might need costly repairs.
• Sale price: Your lease payment is based in part on the sale price of the car. Just like when you buy a car, the lower the sale price, the lower the lease payment. To make sure you're getting a fair sale price, check out the "Edmunds suggest you pay" price, also known as True Market Value (TMV®). This tool tells you what other people are paying for the same car.
• Residual percentage and amount: The residual value of the car is expressed as a percentage, and it's an important part of your deal. The higher the residual percentage, the lower the amount of depreciation you have to pay. In other words, a high residual percentage should net you a lower monthly payment. The residual price is also the amount you would pay the bank if you decided you wanted to purchase your leased car at the end of the term.
• Allotted miles and the over-mileage charge: When you sign your lease, you're allowed to drive a certain number of miles annually. If you exceed that, you'll be charged a fee, usually assessed in cents per mile. The fee can range anywhere from 15 to 25 cents per mile. If you think you're going to go over the mileage limit, you can add extra miles when you sign your lease agreement for a small increase in payment. This will likely be cheaper than paying the overage later. If you do go over your miles but you've decided to buy the car when the lease is over, you will not be charged for going over the allotted miles.
• Disposition fee. This is a sort of "service fee" charged by the leasing company to cover the expense of cleaning up and selling the car after you return it at the end of the lease. Most charge between $300 and upward of $400. You typically won't be able to avoid this charge unless you buy the car at the end of the lease or, in some cases, lease or purchase another car of the same brand.
• Money factor: This is the lease equivalent of the annual percentage rate (APR) in a car-purchase loan. As with an APR, the lower the money factor, the better. Unlike an APR, however, it's unlikely that the dealership will offer you a lower money factor than you would get if you were financing with your credit union or bank. Money factors are expressed in small numbers, such as 0.00125 or 0.00074. Multiply it by 2,400 to get the equivalent number in percentage form.
• Down payment: Lease contracts usually call for a down payment, which is also called a "cap reduction payment." Advertised leases often list high down payments. However, if it's possible, we recommend you pay only the first month's payment and any remaining fees to start the lease. These are often called the "drive-off fees."

To summarize, the Edmunds recommended lease is: three years, 12,000 included miles per year, and paying the drive-off fees as your down payment.

3. Determine your budget

Make sure you have enough money in your budget to account for the down payment, monthly payment, fuel costs and insurance. It's smart to ask your insurance agent for a coverage quote. Lease companies require higher levels of coverage for leased cars than many individuals carry for cars they've bought. The lease company's liability is higher, and it passes this extra expense along to you.

Leasing does allow you to get a better car for the money but keep in mind that leasing has grown increasingly more expensive due to lower vehicle inventories and elevated used car values. We recommend you get a good handle on pricing before deciding to lease.

To illustrate how much the market has changed, here are the average monthly lease payments per year, according to Edmunds' data.

These days it's also worth comparing the monthly payments on a lease versus buying the car and financing it. The gap between the two has narrowed in recent years, and it may be a better deal to buy the car than lease since you'll likely have some equity in the car in a few years.

4. Check for manufacturer lease deals

Many carmakers periodically offer highly discounted lease specials. Edmunds regularly lists these sales from different carmakers on our $299 Lease Deals of the Month and Best SUV Lease Deals articles. The cars in these lease specials are usually priced below the manufacturer suggested retail price (MSRP) and often represent a good deal. However, sometimes the advertised specials might have additional costs in the fine print of the lease ad. You should always check to see if the promised monthly payment includes sales tax and fees and if it also requires high drive-off fees. You can also check Edmunds' Incentives and Rebates section for current offers.

Dealership websites are also a good place to check for lease specials. Many dealerships showcase lease specials that have been tailored to fit the local market, and the terms are often lower than those being offered by the carmaker.

5. Locate the exact car you want to lease

If a lease offer isn't available for the car you want, you can locate other cars to lease by clicking on the "New Car Pricing" tab above any page on Edmunds. After you enter the year, make and model, scroll down on the next screen to "See all for sale." It will display several cars for sale at local dealers. You can narrow down the list of vehicles by color, features, trim price and more. If you are interested in one of these cars, contact the dealer to make sure it is available. If there are several dealerships offering the same car, you may be in a better position to negotiate a better lease payment.

6. Use our calculators to get an estimated monthly payment

It's a good idea to estimate a possible lease payment yourself, with a lease calculator, so you can spot a good deal as you continue shopping. When viewing a specific inventory page (it should have a VIN and a stock number) on Edmunds, scroll to the bottom, where you'll see a buying and leasing calculator. If the buying tab is highlighted, click on the leasing one to bring up the proper calculator. You can change different factors such as the term, down payment and trade-in. This is not meant to duplicate the exact lease price but rather to give you a ballpark figure and see how the various factors can affect the payment. If you're ready to proceed, call, text or email the salesperson listed on the offer to confirm the car is still available and get final or "out-the-door" pricing.

7. Shop the internet department

Though some might like to browse cars in person, we strongly suggest that you shop through the dealership's internet department, which offers many advantages over the traditional car shopping experience. Using Edmunds, you can simultaneously send requests for price quotes from the internet managers at local dealerships. Try to get lease quotes from at least three dealerships. As you shop, it is important to compare prices using the same terms. Ask the salesperson for a lease quote that clearly states the total initial out-of-pocket amount, not just the down payment. This quote should also include registration, taxes and all fees. The same applies to the quote for the monthly payment. Specify that you want the total monthly payment, including taxes.

Step 7.5. Test-drive the salesperson: As you call dealerships to locate your car, you should also test-drive the car salesperson. Ask yourself if you feel comfortable dealing with this person. Does the person return your phone calls and answer your questions in a straightforward manner? Also, you should take a moment to read any available reviews of the dealerships you are considering.

8. Negotiate your best lease payment

You should now have a handful of price quotes and an idea of the level of customer service at the dealerships you contacted. If a dealership offered you a lease that is at or below the offers made by the carmaker, you're in pretty good shape. You don't have to negotiate. You can simply take the best offer and proceed to the next step. However, if you want to shave off every nickel you can from your lease payment, you'll have to shop for your deal, just as you would if you were buying a car. This is where the multiple quotes come into play. Now, there are a few differences between shopping for a lease and shopping for a car to buy, so here is what you'll need to pay attention to.

When it comes to traditional car buying, many shoppers typically look to lower the car's price first and then they work out the other details, such as the APR and taxes. But when you're shopping for a lease, you want to look for the best overall lease deal, not just a low selling price on the car.

Ask the salesperson for a worksheet that clearly states the total initial out-of-pocket amount, not just the down payment. This quote should include registration, taxes and all fees. The same applies to the quote for the monthly payment. Specify that you want the total monthly payment, including any applicable taxes. Take the lowest offer and contact the other dealers to see if they can beat that deal. There may not always be room to negotiate, so if no one budges, you are at rock bottom.

9. Determine if you're getting a good deal

People always want some form of reassurance that they're getting a fair price before making a big purchase. For most people considering a lease, the best deal boils down to two factors: the lowest amount to pay to begin the loan (the "out of pocket," in lease-speak) and the lowest total monthly payment. To be sure the car's sale price is the same or less than what other shoppers in your area are paying, compare it to the "Edmunds suggests you pay" price, which is found on every make and model page on our site. Be sure to select the proper trim level to make an accurate comparison. Keep in mind that there are several elements to a good car deal, so judge the experience as a whole, not just based on price.

Before you say yes to the deal, tell the salesperson you are willing to lease if the dealership will have the car delivered to your home or office. Delivery will save you time and allow you to skip the step of visiting the finance office to hear about additional products, such as alarm systems and fabric treatments. The dealership may not always oblige, but it's worth asking.

10. Review and sign the paperwork

Whether you close the deal at home or at the showroom, the dealership will ask you to sign a contract and an array of documents. At the dealership, this will probably be done in a separate office by the finance and insurance (F&I) manager, who might offer you additional items such as prepaid maintenance plans, fabric protection, alarms or a vehicle locator. Some people might benefit from these extras, but determining a good price can be difficult. Read more about this in "Negotiating a Dealer's New Car Add-Ons."

If you have already seen a worksheet for the lease deal you've made, the contract should be a formality. Make sure the numbers in the contract match the worksheet and that no additional charges or fees were added. Understand what you are signing and what it means. Remember, once you have signed, there is typically no going back to "unwind" the deal. And finally, make sure the lease contract you are signing includes gap insurance to protect you if your leased car is stolen or totaled in an accident.

Now it's time to go out and put your knowledge into action. Just remember that the time you take to research your leasing decision will pay dividends over the years. You'll not only be driving a car that suits your needs, but you'll be saving money in the process.

Other leasing-related articles

5 Car Lease Strategies You Didn't Know About

3 Ways to Turn Your Lease Into Cash

Looking to lease? Read our car leasing basics

Calculate Your Own Car Lease Payment

Should You Buy Out Your Leased Car?

How to Return a Car at the End of a Lease

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