Everything You Always Wanted to Know About Negotiating a Finance Lease, But Were Afraid To Ask

Is a finance lease negotiable?

Yes, it is, and what you don't know could cost you. To properly negotiate, you will need to know how to calculate, in advance, what the monthly payment will be.

Keep in mind that finance lease payments typically consist of a depreciation charge, which is the amount of value lost over the course of your lease; a finance fee, which is the cost you pay to your leasing company for the use of the money the company used to make the purchase; and taxes, which vary from state to state but usually consist of only a local sales tax.

1.  Let's start with Depreciation...(Net Capitalized Cost - Residual) ÷ Term

So what is Net Capitalized Cost?  This is the total cost after negotiation. Be sure you are calculating this cost versus the original price. Residual is the value at end of lease, set by the leasing company and/or manufacturer. Term is set by you and can range from 24 – 72 months depending on your preferences.

2.  Next, the Finance Charge... (Net Capitalized Cost + Residual) × Money Factor

What is the Money Factor? It's represented by a figure behind a decimal point (like .00250). The way to convert a Money Factor into a comparable Interest Rate is to multiply the money factor by 2400. Therefore a Money Factor of .00250 converts to an interest rate of 6.

3.  Now calculate Sales Tax...Rate × (Depreciation Per Month + Finance Fee Per Month)

Finally, we have everything we need to calculate the monthly payment...

Depreciation + Finance Charge + Taxes

With our expected monthly payment calculated, we can now review the contract, and negotiate the cost and money factor.  Remember, never sign a lease if you do not understand how the amounts were calculated. By understanding the mechanics, you can practice calculating the monthly lease payment, and learn to spot a good deal from a bad one.

For more information...

• FRB: Vehicle Leasing: Quick Consumer Guide [http://www.federalreserve.gov/pubs/leasing/]

• Bankrate: Comparing the leases -- do the math and save [http://www.bankrate.com/finance/auto/comparing-the-leases-do-the-math-an...

Disclaimer

The articles presented on this blog are general in nature and should not be assumed to be applicable to your situation. In addition, tax law changes daily and the articles on this blog are not updated to reflect these changes. Anyone receiving any part of the information on this blog should not rely on or act or refrain from acting on the basis of any matter or information contained in this blog without seeking appropriate tax, legal or other professional advice.

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