How to lease a car (in theory)

September 6th, 2013 at 10:19 pm (Finances)

After researching and test-driving a number of electric and hybrid cars, I settled on the Nissan Leaf as my car of choice. Because electric car technology is still changing so much each year, and given the current battery range limitations (the Tesla Model S excepted) as well as the hefty incentives currently available, I determined that a car lease would be a better option for me than buying.

Benefits of buying a Leaf:

  • $7500 federal rebate
  • $2500 CA state rebate
  • Carpool use permission
  • Free home charging station ($1000 value)
  • Zero gas to buy (~$90/month for me)

Drawback (and yes, this is a biggie): 75 mile range.

At any rate, once I settled on the Leaf, I did some research to find out how to negotiate a lease, which was a new experience for me. I found some great advice on lease negotiation as well as how to find out empirical data on what people are actually paying for your car model in your area. (I ended up not needing to use this data, because the offer I got was sufficiently attractive already.)

Most educational (and confidence-building) for me was this information on how to calculate the monthly payment on a lease. It turns out that there is a standard formula, and it isn’t even complicated. You need to ask the dealer for some additional numbers, then plug them in. If your number and their offered number differ, insist that they justify the difference.

In the process of this calculation, you also learn the (effective, average) interest rate that you’re paying, even though the car is not “financed.” For me that was 4.272%.

I also valued the advice to focus on the total car cost first, even though you are not purchasing the vehicle. The monthly payment is directly determined by the car cost that you negotiate, and it is much easier to understand the car cost than a monthly payment figure, in which small monthly differences balloon into BIG total cost differences. ($40/month for 36 months = $1440.)

Armed with this information, I set out to do battle. The salesperson initially quoted me a monthly payment of $335 for the car I wanted: the Leaf model SV with the “premium” package and NO OTHER OPTIONS. I found that you have to re-state NO OTHER OPTIONS frequently and with volume. I wanted the premium package because it includes a back-up camera. It also comes with three more cameras for full surround vision and a Bose stereo system, none of which I needed. Hooray for option packaging. This number also included a $309 “marketing assessment fee” which I indicated that I did not want to pay. $335/mo
I then had to wait out the rest of the month so that I could time my purchase to get a free home charging station from Aerovironment. When I made contact again, the salesperson was offering a lower car cost ($1296 lower — and actually $1000 below invoice) with everything I wanted and without the marketing fee, for the suddenly lower and more attractive price of $299/month. I didn’t even need to use the average car sales data because the car cost was already lower than the empirical average.

That seemed a little weird (too good to be true?), so I went to work with the calculations. Using the numbers I’d been given and my math, the monthly payment worked out instead to $222/month. Wow! Where was the extra $77 coming from?

 $299/mo
When I asked how he’d arrived at $299, the salesperson sent me a high-level list of costs along with a monthly payment that was mysteriously suddenly lower ($270), though still higher than expected. Where was the extra $48 coming from?

A variety of things:

  • VIN etching: $350. Some research indicates that this can increase the chance of recovery of a stolen car (it etches the VIN into the window glass, making it harder to disguise the car), but you get it for free in some locations or do it yourself with a home kit that costs $20-25. No thank you to this charge.
  • Documentation fee: $80.00
  • Non-tax fees: $921.75. Presumably this includes car registration and licensing. I looked up the cost for these items at the CA DMV website: $282. Plus, why would I (effectively) finance this charge? I decided to fold it in to my down payment instead.
$270/mo
My car insurance, of course, would go up to cover the new car. And a slight wrinkle: due to the range limitation, I would need to keep (and therefore maintain, license – $6/month, and insure – $31/month) my old car. However, that ’99 Nissan Sentra XE has a trade-in value of only $1400, so it wouldn’t have saved me much on the Leaf cost. My insurance cost (to cover both cars) would go up by $69/month, which is offset by the gas savings.

When all was said and done, I expected to pay ~$2500 to drive away in a car that was effectively free for 6 months, and then ~$230/month for the next 2.5 years. Not bad at all!

 $230/mo

But that’s not what happened.

I learned that all the research in the world can’t help you if the car doesn’t exist.

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