6 answers
How lease payments are calculated, what to negotiate, and how mileage and drive-off costs work.
A lease payment is depreciation plus rent charge plus tax: the selling price minus the residual value, spread over the term, plus interest on the money factor.
That means the two things worth negotiating are the selling price and any dealer-added fees. Residual value and money factor come from the lender. Lowering the selling price by $1,000 on a 36-month lease saves roughly $28 a month before tax.
Multiply the money factor by 2,400 to get the approximate APR — a .00125 money factor is about 3%.
Money factors are quoted in small decimals, which makes an expensive lease look harmless. Always convert to APR so you can compare a lease against a loan on the same terms.
Choose the mileage you actually drive — prepaying miles is cheaper than paying overage at lease end.
Typical options are 10,000, 12,000 or 15,000 miles a year, and overage runs about 15–25 cents per mile. Inland Empire and High Desert commutes routinely exceed 12,000 miles, so check your last two years of odometer readings.
Sign and drive means $0 due at signing, with the first payment, fees and taxes rolled into the monthly payment instead.
It is not free — it is financed. Compare the total of payments against a lease with a down payment. Sign and drive is genuinely useful because you never lose a down payment if the car is totaled early.
You pay a per-mile overage fee, typically 15 to 25 cents per mile, at lease-end or turn-in.
If you're consistently over, it's usually cheaper to renegotiate the mileage allowance mid-lease with the leasing company than to pay the full overage at the end. Track your odometer against the allowance a few times a year.
Yes — most leases include a preset residual purchase price you can exercise at lease-end regardless of the car's actual market value.
If used-vehicle values have risen since you signed, that preset price can be a genuine bargain. Check the payoff figure in your lease contract well before the term ends so you have time to arrange financing if you want to buy.
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