Leasing A New Car - Don't Make The Same Mistakes We Did!
Welcome to Saving Money with Andrew!
After weeks of waiting, Volkswagen agreed to buy back our electric car, and I celebrated by writing a post about the experience.
But the downside of returning a car is that you need a new one in a hurry. We decided to lease this time, thinking that we just need a car for a few years until there are better electric vehicles available. And we found a car that we’re ecstatic with (a 2023 Honda CR-V Hybrid Sport Touring).
Unfortunately, we made a few rookie mistakes:
Lesson #1 - Don’t Believe A Dealer Has A Car In Stock Unless They Prove It
I foolishly believed dealers who claimed to have the car we were looking for on the lot at the agreed price, and I did not ask for any proof. The first dealer I visited kept me waiting for a while, and then admitted they didn’t have the actual car, or even any hybrid CR-V’s at all, on the lot. Between talking to the dealer, driving to the dealership, and waiting, I lost the better part of an afternoon. This was a huge change from when we were shopping in 2020 and every dealer had plenty of vehicles in stock.
Lesson #2 - Make Sure You Understand What You Are Negotiating
Learning from my first mistake, I insisted the next dealership send me a photo of the specific vehicle, and then started negotiating. But I learned as we began to negotiate a lease was that all they wanted to talk about was the monthly payment. And once a dealer works out a monthly payment with you, they will structure the deal in a way that is very bad for you. If you’re negotiating on that basis, you have already lost.
Instead, after you’ve decided on the length of your lease and the miles per year you expect to drive, negotiate with the dealer on the underlying economic terms of the lease: the money factor, the gross capitalized cost, and the residual value of the car. The money factor is the financing charge (akin to an interest rate) you are paying on the vehicle.[1] You want that to be as low as possible. The gross capitalized cost of the car represents the agreed value you are putting on the car. You want it to be as close to MSRP as possible, if not lower. And the residual value is an estimate of the value of the car at the end of the lease. You want that to be as high as possible, though that is typically not negotiable (it’s set by the vehicle manufacturer).
And, if a dealer insists on a steep markup or a bunch of optional add-ons, push back or check with at least two other dealerships. It’s a bad sign.
Lesson #3 - Don’t Go It Alone. Consult Professionals, Or Maybe Even Hire One!
Once I was able to get the actual numbers from the dealer (the money factor, capitalized cost, and residual value), I was still struggling to understand whether I was getting a good deal. But I came across two great free sources of help, as well as services that I plan to use the next time I’m looking at leasing a car.
First, I went to Reddit’s Askcarsales board, where you can ask actual dealership employees for advice, and Reddit’s car model-specific boards (including r/crv for Honda CR-V buyers). You can post the lease quote you received, and ask if it’s a good deal.
I also found Leasehackr, which has a free lease calculator and a great forum where you can ask professionals about leasing deals. To go a step further, you can even find pre-negotiated lease deals through the site, either directly through Leasehackr or through lease brokers. While I didn’t end up using this service (mainly because they didn’t have any Honda CR-V’s available), some of the deals seemed very attractive.
Lesson #4 - Make Sure You Really Want A Lease
When all was said and done, we got (at best) a decent lease deal. We paid a modest premium to MSRP (comparable to other CR-V Hybrid transactions we came across) and did not pay for any add-ons. But making sure that we weren’t getting cheated and having to learn all the leasing terminology was a big hassle. If I could do it all over again, I would have simply bought a new CR-V Hybrid, keeping it or trading it in if we decide to try a battery electric vehicle again.
Do you have great car leasing or buying tips? I’d love to hear from you.
And now, Andrew’s pick(s) of the week:
Switched at Birth, Two Canadians Discover Their Roots at 67
And, uh oh - ‘How Do I Do That?’ The New Hires of 2023 Are Unprepared for Work
I hope this has been helpful. If you liked it, please share it on social media! Also, please send me your feedback, requests, and success stories.
[1] To convert a money factor to an interest rate, simply multiply the money factor by 2,400.