Understanding Car Lease Deals

Lease payment seems low but is it a good deal or not?

Let’s look at an actual car lease ad

honda deals 2Here is an actual newspaper promotional advertisement for lease deals from the Honda web site. We’ll focus on the ad for the Accord Sedan for $199 a month, for 36 months, with $2499 due at signing.

This ad is typical of most lease ads for other vehicle makes/models.

Are the advertised lease deals actually good deals? How can you tell? What do you need to watch for in the fine print.

The car lease ads normally seen on TV, in newspapers, and on car company web sites are generally limited-time promotional deals, and are genuinely good deals.

However, it’s necessary to read the fine print in the ads to determine the conditions under which the offer is being made.

What the ad says

$199 a month, 36 months, $2499 due at signing – Monthly payments will be $199 — plus sales tax (in most states) — for 3 years. Of the $2499 due at time of lease signing, $199 is for the first month’s payment (lease payments are always at beginning of month), which leaves $2300 as down payment (cap cost reduction).

36 month closed-end lease for a Honda Accord Sedan CVT LX. This indicates this is a closed-end “walk-away” lease, which is a normal consumer lease, not a commercial or business lease. The lease expires in 36 months at which time the car must be returned, or purchased. Only this specific model vehicle is being offered in this lease. The lease can’t be extended or changed to include some other model. The ad will also specify the time period during which the special deal is being offered.

… to well qualified lessees approved by Honda Financial Services. This means that the leasing customer must have good credit and be approved by Honda’s financial company in order to qualify for this special lease deal. (It’s always a good idea to know your current credit scores before going to accept one of these promotional offers. What’s your FICO score? Find out now when you check your credit report for $1 at Experian.com!)

MSRP $23,545 – Excludes tax, title, registration, tag, and other fees – This is the sticker price for this vehicle, but not the price that the lease will be based on (see Net Capitalized Cost below). It does not include any tax and official fees that are required in the customer’s state or county.

Actual net capitalized cost $20,006, including acquisition fee $595 – The price of the vehicle has been discounted by $4134 (excellent !) and a $595 acquisition fee (like a processing fee) has been added back in. This fee is normal for all car leases and $595 is Honda’s standard fee for all leases.

Total of monthly payments $7164 – This is simply the sum of 36 payments of $199 each. Contrast this to the sum of loan payments for the same $23,545 (plus interest) car — approximately $21,000.

Option to purchase at lease-end $13,891 – All car leases provide an option to purchase the vehicle at lease-end for a specified, guaranteed amount. This amount is also the Residual Value on which the monthly payment is calculated. In this case $13,891 is 59% of MSRP, which is excellent for a 36 month lease.

Lessee responsible for maintenance, excessive wear/tear, and $0.15/mile over 12,000 miles per year – This means the leasing customer must provide required maintenance just as if he owns the car, and has an allowance of 12,000 miles per year (36,000 miles total for 36 month lease). If the vehicle is returned at lease-end with excessive wear/tear or damages (the lease contact spells out exactly what is considered excessive — Honda is fairly lenient), or excessive miles, the customer is expected to pay at the specified rate. Honda’s rate is very reasonable.

Is this a good lease deal ?

leasedealcalcGiven all the details typically provided in car lease ads and TV commercials, we can actually evaluate the deals to determine if they are worth considering. A quick way to do it is to use the Lease Deal Calculator.

If we plug in the numbers for the Honda Accord lease that we’ve used as an example in this article, we find that the deal is rated “Outstanding” which is the highest rating. Again, this is a promotional deal being offered by Honda to help sell (lease) this particular model. They have discounted the price heavily, created a high residual value, and reduced the normal finance rate (money factor) — all of which makes for a nice low monthly payment.

Where to find the best car lease deals being offered by car manufacturers

This Best Car Deals web site contains a list of current lease deals on many makes and models. The deals come from manufacturers who are placing special lease prices, high residuals, and low money factors on certain models. The deals are genuinely good deals but you should make sure you can live with the car model, the term (usually 36 months), annual mileage limit (usually 10K-12K miles per year), and the down payment, if any.

Even if the car you want is not being offered this month as a special lease deal, you can still get a good deal — if you get a good price on which to base the lease. Get the lowest price for the lowest monthly lease payment. Go to Edmunds and see what no-haggle low prices are being offered in your area, It’s the best way to get a good price, and low lease payment, without stressful negotiations.

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