Keys to Leasing a Honda or Any Vehicle
ByIn a recent post I discussed the pros and cons of leasing a car versus buying a car outright. I primarily covered the financial side of the equation but obviously much more goes into the decision. The greatest advantage of leasing a car is that every 2 to 3 years you end up with a new vehicle and generally will have no unexpected out of warranty expenses. Another great advantage is you never have to negotiate the sale or trade in of your existing vehicle. You don’t have to take car rides with strangers doing a “test ride” or get taken to the cleaners by a used car specialist at a dealer. With a lease you hand the keys over and walk away. But the key is to get the right price to start and most people are totally lost when it comes to car leasing.
There are eight critical steps in preparing for and executing a car lease:
1. Research online the exact make and model you are looking for at a site like Edmunds. Find all available rebates for the exact model including hidden rebates and dealer kickbacks. You can also generally get an idea of what others are paying in your area.
2. Choose a dealer. You can research dealer inventory online. Find a dealer that has the car and color you want. Instead of having to have the dealer transfer cars which is costly to them, go to the dealer that has the vehicle you want. Unfortunately this will often favor the larger dealers with deeper inventory.
3. Send a premliminary email through the dealer website. Tell them exactly which car you are looking for right down to the stock number and what you would like to pay for the vehicle. Wait for a response.
4. Arrange to visit the dealer after they respond to your email. I prefer to deal with them in email so that everything is written versus verbal.
5. Check your credit scores online using sites like myfico.com for Transunion and Equifax and Creditexpert.com for Experian. Honda uses Experian in Massachusetts. You can usually ask the dealer finance manager which credit bureau the manufacturers finance company will use to make sure your report is clear. In general auto finance and lease quotes assume you have a super preferred credit score which is 720+ in most cases. Keep in mind this is the auto enhanced score which is different than what you will see from the consumer sites. Only the dealer can see your auto score but keep in mind in my experience if your personal score is 700 and you have paid for a couple of cars on time your auto score will be higher. Sometimes the lease deals also will allow regular preferred scores to qualify for the best rate which is 640+ on the FICO scale. If your scores are substantially lower than 650 or 640 I would tell you that leasing probably isn’t your best option. Instead use sites like creditboards.com to review discussions on how to improve your credit score prior to applying for a loan or lease.
6. Once you arrive at the dealer make it very clear to the sales person and to the finance manager that you want your credit report run only by the auto finance company. Most dealers want to check your score too and although in general there isn’t a ton of harm in this the dealer is not leasing you the car. Honda Financial Services, Toyota Motor Credit, NMAC (Nissan Motor Acceptance Corporation), Ford Motor Credit etc. are the ones doing the leasing and making the decision. They are the only ones that really “need” to see your report. Make it absolutely clear that you only want to use the manufacturers bank and that there is no need to shop your lease around. I will often write this right on the sales quote/release that I sign. I will discuss why you want to make this clear below.
7. Settle on the purchase price for the car. Do not get into the “what do you want your monthly payment to be” discussion with the dealer. It’s totally irrelevant. You care about the selling price just like a traditional car purchase. Monthly payment has nothing to do with it. Even the special deals being given by Honda right now are negotiable. Once you have the price agreed on it is time to move on to the next stage.
8. At this point you can explain that you are interested in leasing through the manufacturers finance company. Based on you finding that your credit scores are good have the dealer assume you are super preferred. Ask them for the residual value on the car and also the money factor. With that information go to the car lease calculator and enter the information. MSRP is the sticker price. Base cap cost is simply the price you agreed upon in step 7. Additions to cap cost/step 3 on that site are often rolled into the agreed upon selling price in Massachusetts. IE, most dealers will tell you the bottom line which includes those fees which aren’t negotiable. The bank acqusition fee is a great example. That is essentially the bank profit on the lease. The dealer may tell you they’ve waived it but it’s still going to end up somewhere in the purchase price just like the delivery fee. Step 4 are cap cost reductions which include any money you decide to put down on the lease. I won’t offer an opinion on this other than to say putting money down on a lease tends to defeat the purpose of leasing. Step 6 is the residual value. Most car companies do this on a percentage basis but the Lease Calculator site allows you to enter it either way in case it’s a dollar figure. This is the value of the car at the end of the lease. The higher the percentage the lower the payment which is why domestic cars have never leased well as their residual values are often lower. The rest of the steps involve entering sales tax if applicable. The figure you get after using that calculator should EXACTLY match what the dealer quotes you. If it doesn’t have them explain why. We have had dealers “by mistake” double sales tax hoping we wouldn’t catch it or “accidentally” add in the extended warranty. There is no magic to lease calculations, all you need is the “cap cost” which is the agreed upon sale price, the residual value expressed as a percentage or dollar figure and the money factor or interest rate. From there the calculator gives you everything you need to know.
In summary, first and foremost leasing a car is no different than buying a car. We are going to use the Honda Civic example again. When you first arrive on the lot and the salesperson asks what you’d like to pay per month politely explain that you’d rather discuss what the final car price will be. Use sites like Edmunds.com and more importantly Edmunds Townhall to see what people are paying for the car after all rebates. There are often hidden dealer incentives that you would never know about without visiting that site. Sometimes it’s a percentage holdback that the dealer is getting and sometimes it’s a direct incentive applied to a lease or purchase. For instance through today Honda is offering a $1,000 hidden incentive on all Civics. The MSRP on the car is about $16500. The invoice price is about $15,300. With the $1k rebate factored in a fair sell price on the car would be anything above $14,300. Personally I believe the dealer should make some money and don’t go in looking for the deal of the century. This has always served me well. If I were buying or leasing a Honda Civic I’d probably offer about $14,600 explaining to the sales person that this can be quick or it can be the normal back and forth that goes on for days. I always know which vehicle I want when I visit the lot and explain that I don’t want to price shop. I respect the salespersons time and if there’s a choice of making $100 or $200 of selling a car over six hours of work versus selling it in two hours all parties would rather have it done in two hours. Be fair, be reasonable and even major dealers like Boch that sometimes get bad reputations will work with you and the process is painless. Go in asking for a car at 2k below dealer invoice and you are in for a battle. Use all of the available data on sites like Edmunds. If you walk into the dealer and tell the salesperson you are aware of the hidden rebate they know right away you are not playing around. I always come right out and tell them “we can do this in 2 hours right now and you can move on to the next sale or we can play games for days” and the vast majority of the time the deal is done in a few hours.
Other car leasing tips:
Use the Manufacturers Bank: For quite a few years it was common to see newspaper ads with incredibly low lease rates on cars. There was a catch though as the lease company was not the car companies captive bank but third party banks. They don’t care about you, they don’t care about the car company or making you happy at the end of the lease. They want to make money off of you. Most of the time when you hear horror stories of lease turn in fees for damages being sky high it was through these third party banks. Honda, Nissan, Toyota, Ford and just about all the others want your business. They want you as a loyal customer. Honda recently sent us a letter telling us they’d pay our last two payments and waive up to a $1000 in damages if we leased another Honda. As it is almost every manufacturers car lease will come with a $500 “freebie” towards items broken or missing at the end of the lease. You will almost always get a notice from your lease company inviting you to lease again, waiving fees and providing other incentives. With Honda, Toyota and Nissan the lease turn in process is almost painless. Almost all of the major leasing companies give you a few dings per door panel, scratches and normal wear and tear. They want your business, they want you to be happy and they want you to buy or lease another vehicle from them in the future. It is also a lot easier to trade the car in early if you decide to go that route.
Rack up the Rewards: If you decide to make a downpayment or pay the initial upfront costs use a credit card. Most dealers will take the charge card happily, it gives you another 30-45 days to pay the bill and if you use the right card you may increase your rewards. It also gives you some leverage just in case anything does go wrong in the transaction.
Pick your Dealer: Don’t waste their time. Do your research online. Send an email online through the dealer site. Generally they will assign two people to you. The first handles the internet communications and will then hand you to a salesperson when you arrive. In my experience you get the premier salespeople as I think the dealers reward their best people. In several dealings with Boch I have found the people I was given at the dealership were outstanding. I have had much better luck with the mega dealers. They have more vehicles they want to move out the door and more choices. At times I have done very well with local smaller dealers. At the same time if they have exactly one of the make/models you are looking for chances are they aren’t going to give you the best of the best deals as they need one on the lot to show people anyway. The mega dealer with forty of the same make/model/color could care less and wants the care gone.
Check your numbers: Use the lease calculator site to check your numbers and their numbers. If something doesn’t add up find out why BEFORE you sign.
Insurance Agent: Let your insurance people know before you leave the house. Tell them you may be leasing a new car and get their fax number so you can pass it to the dealer.
Excise Tax: Leases at one time included the excise tax in the monthly payment. Now most will bill you in April for the excise tax in full. If you ask they will break the payments out in most cases if need be but many are shocked to get a $300 excise bill in addition to their regular payment.
Tired of the car? It’s a myth that you cannot “get out of a lease.” If you lease a good, reliable and in demand car you can often make a move during the lease period. A recent vehicle we had was actually worth thousands more than was “owed” as part of the lease payoff. In the Civic example 18 months from now the payoff may be $13k for example. If the dealer is willing to buy it back for $13,200 you can actually trade up to a new car putting $200 in equity towards it. Even if the value was only $12,000 you can easily make up the difference and roll it into a new lease. Most lease companies will allow up to 110%, IE if you are leasing a 20k car they will “lease” up to 22k. Not the best thing to do but if your life changes you are never stuck unless you buy a clunker that nobody wants and that depreciates like crazy.
Drive a ton? If you drive more than 15 or 20k miles a year leasing probably isn’t for you. Sure you can easily pay the over mileage at lease end but if you drive 40k miles a year the over mileage will be enormous. Leasing is best for people that drive 10-20k miles a year.
Turn the Keys in and Walk Away: At the end of the lease you will either trade it in at a dealer for a new car, or drop it off at a dealer for an inspection. You don’t have to negotiate a trade in price, have someone haggle you down over a few scratches or a stain on the seats. You walk away and move on so long as you have kept reasonable care of the car. If you smashed the car up in an accident as long as you had it fixed by a professional you are good to go. You won’t get whacked with “loss in value” fees from a Carfax report or anything like that. It’s no longer your problem, move on. That’s the beauty of leasing.
Check your Credit: Mentioned this above but make sure your credit is good or you are wasting your time and money. Also this helps to make sure you have not locked your credit reports which will prevent any financing in the first place.
Good luck. Questions, thoughts and suggestions are welcome and these two documents will be modified as needed. To read the leasing versus buying a Honda discussion follow the link.
