A few weeks ago, I started a series of articles on the auto leasing programs and various ways to calculate a lease payment. I also talked about the auto leasing vocabulary which, based on your feedback, it was very useful. Today, I would like to give you some quick tips on how to negotiate the right lease and a lower monthly payment. Our final article in this car leasing series, will teach you how to negotiate the best price at your dealers, techniques and resources used.
Never put money down (known as “Capitalized Cost Reduction”) is not gospel, just generally good advice. In a lease, BMW Financial Services is actually buying the car for you, you’re just renting your BMW from them. If you do a Capitalized Cost Reduction(CCR) and let’s say, several days later you will total your car in an accident, all that money from your insurance company goes to BMW Financial Services, so all the down payment you placed on your lease, it’s GONE, you won’t be able to get it back.
You have a few options to reduce your monthly payments. CCR is one of them, but there are others as well:
- The obvious and oldest technique – negotiate a lower purchase price
- Don’t load your cars with all the options available, prioritize and think about the fact that you will give back the car in 2-3 years (well, most of us will)
- Negotiate down the Money Factor, which is your interest. Even though you’re not actually buying the car you’re negotiating the price BMWFS will pay for it and the interest they will charge. The difference between this purchase price and the (residual x interest) + tax is what determines your monthly payment so you want to do everything you can to get the purchase price and money factor down. Think of a car lease as a regular purchase: negotiate the final price before you talk about payment options.
- Another option with BMW is called Multiple Security Deposits (MSD). If you’re a new buyer you’ll have to pay one security deposits, but under MSD you can make up to seven more. .
The security deposit is your monthly payment rounded up to the next $50 increment so $720 payment requires a $750 security deposit. The point of an MSD is that each additional security deposit cuts the money factor by .00007, so if you do all seven you’ll cut your money factor by .00049, lowering your monthly payment and the total price of the lease. Absolutely worth it.
And NO, the MSD are not lost, you will get your security deposits back at the end of your lease, unless you total your car. The only downside to MSD is that it will not lower your payments as much as CCR, but it is a great way to shave off some dollars from your monthly payment.
Let me add one more thing. Many people say that if you’re planning on keeping the car go ahead and finance it because that’s cheaper. That is not necessarily true. If you get a relatively low money factor and interest rates on a purchase is high it’s usually cheaper to lease the car for three years and buy it at the end of the lease. Your mileage might vary, but it’s worth taking a look at both options.
If the situation is reversed and interest rates are low and money factor high this situation could be reversed. The only way to know for sure is to work the numbers and see how it comes out. You could be saving a few hundred dollars per month in a lease and you can use that money in a savings or CD account, gain interest and use it after three years towards the purchase, if needed.
I hope this guide gave you some more insight and it will help you score a lower payment.