Leasing a Car

Steps to remember when you lease a car.


  • Find the car you want
  • Get invoice price
  • Find out how much each add-on costs, and whether the car you want has it (note: add-ons have invoice price, too)
  • Get MSRP
  • Get any additional costs: insurance (including GAP), security deposit, titles, tags


  • Dealer cares most about how much cash they get from you, and they don’t care what it’s for
  • Better to add sales tax to monthly payment–you keep your money, not the dealer
  • Processing and document “fees” are bullshit, but dealers fight hard for them
  • Get as low a net cap cost as you can–this is the cost of the car plus any fees, insurance, taxes, tags
  • Get as high a residual as you can (note: makes it harder to buy car at end of lease)
  • A good lease deal is when you have the lowest possible net cap cost with the highest possible residual, along with the lowest possible money factor.
  • GAP insurance may be offered by your primary auto insurer for much less than dealer (Erie Insurance is excellent)


Start your research by looking online. Find any specials car manufacturers/dealers might be offering, and get as many of the numbers as you can. Some of the numbers are going to be hard to find (in particular, the residual value and the money factor), but persist.

Deal with the Internet Sales Manager via email, if you can. These are the people that sell to governments and municipalities. They’re accustomed to getting things done quickly without a lot of haggling.

Give yourself lots of time. If you have kids, it’ll be harder, but it’s possible, especially if you do your research up front.

If you can, go to the dealership and scope out the selection. It you notice there are lots of silver models, and that’s the color you want, pretend you actually want maroon. The dealer, in its interest to sell you a car, might give you a better deal to get you out the door with the silver.


There are three components to the monthly payment: deprecation, finance, and sales tax.


Depreciation Fee = ( Net Cap Cost – Residual ) ÷ Term

Finance Fee

Finance Fee = ( Net Cap Cost + Residual ) × Money Factor


  • Money Factor: the interest rate divided by 2400. This value is usually really small, like 0.0006 (1.44/2400). Slightly dependent on your credit rating.
  • Net Cap Cost is gross cap cost (selling price you negotiate with the dealer) plus any add-on dealer fees and taxes, and any prior loan balances, minus any cap cost reductions (down payment, trade-in, or rebates). Net cap cost does not include any fees you pay up front in cash.
  • Residual Value: how much the car is worth at the end of the lease. This value is usually expressed as a percentage, like 51%, of the MSRP.
  • Sales Tax: must be added in most states.
  • Term: the length of the lease (36 months is standard)