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The last time a car commercial grabbed your attention with an attractive lease deal, you were probably bombarded with a flurry of rates, payments, and terms squeezed into a mere thirty seconds. So, what exactly is a car lease?
An auto lease is a long-term rental agreement for a vehicle, governed by specific terms and conditions. The lease terms are mutually decided by the customer and dealership. Intriguingly, a third-party leasing company takes actual ownership of the vehicle and then leases it to you.
Let’s dissect a vehicle lease agreement into its four primary components:
The Capitalized Cost
The Residual Value of the Vehicle
The Money Factor
The State Sales Tax
These core factors dictate the overall cost of the lease, subsequently influencing your monthly payment.
Let’s take a closer look at each of these four parts of an auto lease. Once we’ve covered the basics, we’ll familiarize you with the parts of a lease contract, so you know exactly what you’re getting into. Skip ahead to the example here if you like.
The Four Parts of a Car Lease
1. Cap Cost (Capitalized Cost)
The cap cost diverges from the out-the-door price, which integrates the vehicle price with all taxes and fees. Instead, you negotiate the cap cost during a lease, representing the sum the leasing company pays for the car. This figure typically includes:
Negotiated selling price
Documentation fee
Miscellaneous charges
Additional add-ons or services
It’s important to note that some of these expenses, like security etching or nitrogen-inflated tires, are negotiable. To provide context: a $1,000 increase in cap cost approximates to an additional $27 monthly on a 36-month lease.
Before committing, scrutinize every detail of the buyer’s order, distinguishing legitimate fees from the negotiable ones.
We’ll take a look at the parts of an auto lease contract in a bit, or you can skip ahead to it here.
2. Residual Value
This value mirrors the car’s projected worth at the end of the lease. Depreciation during the lease term is what you’re paying for. If, for instance, the residual on a 36-month lease stands at .75 (75%), you’re essentially covering the 25% anticipated depreciation over that period.
Residual values, set by the leasing company, vary depending on the yearly mileage you’re permitted (standard figures being 7,500, 10,000, 12,000, or 15,000 miles). Dealerships cannot modify these values, with the sole exception being adjustments for additional allowed mileage. This residual is disclosed, highlighting what you’d need to pay if you wish to purchase the vehicle at the lease’s end.
3. The Money Factor
Similar to an interest rate on a car loan, the money factor can be marked up, benefiting the dealer. Dealers typically receive a money factor (for instance, .00125) from a lender, and might mark it up by 50 to 100 basis points. The disparity between this base rate and the marked-up rate translates into profit for the dealer.
Pro Tip: Always aim to haggle the money factor close to its buy rate.
4. Sales Tax
Sales tax varies state-by-state. See your state’s tax rates here. While most states append the tax to the lease’s total price, others like New York, New Jersey, Minnesota, Ohio, and Georgia impose it upfront on the overall lease payments. Virginia, Maryland, and Texas, on the other hand, tax the total selling price (cap cost). Though non-negotiable, understanding your state’s tax nuances is crucial for understanding what you can afford in any car deal.
Estimate Your Monthly Lease Payment
At CarEdge, we’re always working on something new to help demystify car buying, car selling, and ownership. If you’re considering a new car lease, estimate your monthly payment in seconds with our latest free tool: our car lease calculator.
Understanding Your Car Lease: A Real-World Example
There’s no better way to learn than to work through a real example. That’s exactly what we’re about to do by breaking down the parts of a real auto lease contract.
In this image, we can see the first few lines of a lease contract. Expect this portion to contain the contact information for you and the lessor, who is the dealer. There will also be information about the specific vehicle you are leasing. Make sure the VIN number matches the car you want! If you have a trade-in, that information will be listed here too.
The next part of your vehicle lease agreement includes some very important information. First, check the ‘Amount due at lease signing’, which is box #2 in our example. Does it match the deal you’re expecting?
Now let’s move on to box #3. Check the box for the remaining months of payments after the first payment. This number should say 23 if you’re signing a 24 month lease, 35 if you’re signing a 36 month lease, and so on. This is how you confirm that you’re getting credit for the first month’s payment, which is due at signing in most cases.
Below that, you’ll see an itemized list of what you’re paying at lease signing. Pay attention to the details in section 6.
You should see the license, title, registration and tax fees listed. You’ll also see the Doc Fee, which varies by state.
Watch Out For Add-Ons
Pay careful attention to the line items that may be dealer add-ons that you don’t want. In section 6 in our example, lines A.11 through A.13 are where we would see this.
Section 6.B line #2 is where you would see any rebates or incentives you’re expecting. If you’re expecting an electric vehicle tax credit, for example, it should be shown here.
Now, make sure the ‘Total’ number equals what you expect.
The above section explains how your monthly payments are calculated. It can be tough to follow, but we’ll highlight which parts are most important to double-check.
Are There Markups?
Section 7.A is the total price of the vehicle, which should be MSRP, or ideally discounted from MSRP, plus any additional fees you agree to.
In this example, the total price includes the agreed upon selling price of $57,409 plus the acquisition fee of $650 and the electronic filing fee of $33 for total price of $58,092.
Double check this number. If the gross capitalized cost is higher than you’re expecting, find out why. Is there a dealer markup on the vehicle? You’re paying more than you should if so.
What is a ‘rent charge’, you ask? The rent charge is the total interest that is paid during the term of the lease. The rent charge is based on the agreed upon money factor used in the lease calculation.
Ensure that the allowed mileage matches what you expect. Learn what the excess mileage rate is if you exceed the limit.
Towards the end of this section, you’ll see the ‘total monthly payment’. Is this what you expect? This is how much you’re agreeing to pay every month.
Double Check Your Numbers
You need to make sure that the discounted selling price that you negotiated matches line A in section 11. Section 11 line B will also list any accessories or options that you have agreed to be added to the selling price, such as excess wear and tear protection, tire and wheel insurance or even a service contract. Please make sure that nothing has been added that you have not agreed to.
Read the first line in bold. You do NOT have to purchase add-ons or protection products to enter into the lease. No matter how hard the salesperson pitches their value, remember that you can say no. If you do agree to any, they should be listed here.
The total taxes to be paid for the lease are included. Make sure this number is what you expect. Taxes and state fees are estimated because if the state increases the sales tax rate or vehicle registration rates during the term of your lease agreement you will have to pay the new rates and fees.
Below these first few pages of the car lease agreement, you’ll have standard disclosures for your auto insurance policy information, vehicle warranties, and additional terms and conditions. Wondering what happens if your leased car gets stolen? You’ll find that information here.
Lease Terms Are Negotiable!
Every week, our team of Car Coaches helps hundreds of drivers negotiate the best lease terms. It’s a commonly held misconception that leases aren’t negotiable, but that’s far from the truth. With basic knowledge of how to navigate an auto lease contract, you can stay in control of your deal.
As the seasons transition, so does the car market! September has welcomed surprisingly great new car incentives from some brands, and pathetic offers from others. Auto manufacturers are eager to push 2023 models into the limelight before the new year arrives. If you’re in the market for a new car, now’s your golden opportunity. Here’s a roundup of the most enticing offers for buying and leasing.
The Best Auto Loan Rate Offers
The highest interest rates in 20 years are not stopping OEMs from launching great financing deals in September. In fact, we were shocked at the abundance of 0.0%-0.9% APR offers. Automakers likely see this month as the last chance to sell 2023 models before they take on a dated feel. Some of your favorite brands are offering jaw-droppingly low interest rates.
Let’s take a look at the best of the best. For a complete list of new car financing offers, head to this resource.
Hyundai: As low as 0.9% APR for all 2023 models, including the popular Palisade, Santa Fe, Sonata and more. The IONIQ 5 EV also qualifies for up to $7,500 in cash incentives. See details at HyundaiUSA.com.
Kia is also offering 0.9% APR financing for all 2023 models for well-qualified buyers. See details at kia.com.
Honda: 0.9% APR for the Honda Accord (including Hybrid), Civic Hatchback, Civic Sedan, CR-V, HR-V, Odyssey, Passport, Pilot, Ridgeline. See details at Honda.com.
Chevrolet: 0% financing for the Silverado 1500, and no payments for 90 days (Truck Season Sale). Trailblazer, Equinox, Blazer, Traverse all qualify for 2.1% APR. For all other models, including the Tahoe, Suburban, Colorado and Bolt, Chevy says to contact a dealer for the latest offers.
Ram, Ford, Nissan: Can you believe it? A straight 0.0% APR for many 2023 models. Unfortunately, the automakers say you must contact a dealer for specific offers.
Mazda: As low as 0.9% APR for all 2023 models, including the CX-30, CX-9, and other models.
GMC: APR as low as 0.9% for most models, including the Sierra 1500, Terrain, Yukon, and more.
The Best Cash Incentives in September
When it comes to cash incentives, electric vehicles are stealing the show. Especially those not falling under the revised federal EV tax credit. Here’s where you can save the most:
Hyundai IONIQ 5: A huge $7,500 off for some trim options. Caution: some dealerships continue to mark up their Hyundai EVs. The deals ARE out there! See details at HyundaiUSA.com.
Toyota bZ4X: Another whopping $7,500 off. Caution: Toyota’s first EV charges slowly. Think about your charging needs and preferences before buying any EV. Learn more about this offer at Toyota.com.
Stellantis is bringing stellar new car incentives this month, but their bloated inventory numbers show that they may have no choice. They are offering almost 15% off MSRP for some models, including the Jeep Cherokee, Gladiator, and others. This translates to up to $7,000 for higher trims. And for the Ram 1500? Up to $4,000 off the MSRP!
The Best Lease Deals in September
Ready to drive the latest models without the long-term commitment? Here are the most attractive lease offers.
We detail ALL of the best lease deals from every major brand here.
There are reasons to consider leasing an EV these days. There are fuel savings, the novelty of transportation reimagined, exhilarating performance, and lower emissions. Plus, EV leases are becoming more affordable! The most compelling reason to lease an EV is the protection from ending up with an outdated car. With a lease, you’ll be able to upgrade to a faster charging, longer range model when your lease term is complete. That’s a lot better than being stuck with a slow charging, less-than-capable electric vehicle in a few years!
The automotive landscape is in flux, and upcoming weeks may bring even more enticing new car incentives. With rising interest rates surpassing 7%, coupled with MSRP escalations and a cooling used car market, the scales tilt towards reduced demand for brand-new vehicles. Reduced demand almost always results in stronger manufacturer incentives to lure in buyers. This is particularly evident for the high-ticket trucks and SUVs.
As you head out to shop the dealer lots, remember this: if it’s taxable, it’s negotiable. Even the models with the tightest supply are negotiable with the help of a CarEdge Coach. Check out these car buying success stories!
Ready to work 1:1 with a car buying pro? Learn more about CarEdge Coach, your path to the most savings and the least stress. Prefer a DIY path to car buying? With CarEdge Data, you have the tools at your disposal to find the best deals and identify opportunities for negotiation.
Honda inventory is rising, and is now the highest it’s been since before the pandemic. As a result, Honda models are more negotiable today than at any point in recent years. Across the brand, there’s a 47-day supply of new Honda cars and SUVs.
The current state of Honda’s inventory offers insights into which models provide more wiggle room for negotiation and which ones are a tighter squeeze. Plus, we’ll take a look at the best Honda offers this month. Let’s delve into the numbers and see where you might find the best deals.
Navigating Honda’s Current Stock
Savvy car buyers have a little-known trick up their sleeve: market day supply. Previously, market day supply (MDS) was only used by auto industry insiders. We’re out to change that.
Market Day Supply takes into account the existing inventory of a new or used vehicle, and the selling rate over the last 45 days. What you get is the number of days it would take to sell ALL vehicles in stock at current selling rates, assuming no new inventory was added. In simple terms, MDS reflects the level of demand for a car. High MDS almost always means high negotiability. Low MDS suggests that deals will be harder to come by.
For starters, a ‘healthy’ MDS in the car market is somewhere between 45 and 60 days of supply. Anything below 20 days is a real shortage, and anything above 80 is a serious oversupply. Today, Honda averages a healthy 47 days of supply. For Honda, this is quite high.
When assessing the most negotiable new Honda models based on present market supply, three models stand out: the HR-V, Odyssey and surprisingly, the remaining 2023 CR-Vs. These vehicles offer buyers a good chance to get a sweet deal.
Here’s the latest Honda inventory nationwide. We’ve included used Honda inventory numbers to highlight possible opportunities for better deals, depending on the model.
On the other hand, the least negotiable models in the Honda lineup, perhaps unsurprisingly, are the popular CR-V and the spacious Passport. But don’t lose hope; while new models might be challenging to haggle over, there’s a silver lining.
Used Honda Deals Are More Abundant
A closer look at Honda’s inventory reveals that the used car market offers a more balanced playing field. For those eyeing a Honda, it seems that the gently used 2021-2022 models are where the action is. Cars from this year appear to be in ample supply, making them a prime target for savvy buyers aiming for a reasonable deal.
Remember: in general, 2021-2022 used Honda models are in high supply. However, there are nuances from one model to the next. For specific data points for particular models in certain markets, we recommend CarEdge Data.
We track the used car market weekly here, and it’s clear that wholesale prices are in freefall. Slowly but surely, these price declines are translating to retail markets. It seems that used car dealers are fighting the overall market’s downward trend as long as they can.
The Best Honda Deals This Month
Even with low inventory for its most popular models, Honda is offering great financing and lease deals this month. Caution: dealers are known to add ‘market adjustments’ onto the price tag of the popular, low inventory models. We do NOT think any Honda buyers should agree to pay any dealer markups in today’s market. Need assistance negotiating markups and fees? Speak to a CarEdge Car Coach today.
Honda Finance Offers
The average APR for a new car loan is 9.95%, so these deals are worth considering.
Ridgeline: Enjoy a 0.9% APR for 24 to 36 months (or 2.9% APR for up to 60 months).
The key to negotiation lies in understanding the dynamics and positioning oneself strategically. So gear up, arm yourself with this intel, and drive into your Honda negotiation with confidence. Remember, even in a market pinch, there’s NO justification for overpriced add-ons or inflated warranties.
Ready to negotiate like a pro? Try CarEdge Coach and CarEdge Data today! With these tools at your disposal, you can take control of your car buying experience, understand market dynamics, strategize effectively, and secure the best deal possible. We’re simply here to help!
Stepping into a car dealership can feel like entering a high-stakes poker game, but with the right guidance, you can confidently call their bluff. CarEdge’s Ray Shefska lifts the veil on dealership tactics with secrets from his impressive 40+ year tenure in the industry. While maximizing profits is part of their playbook, you don’t have to be an unwitting participant. With CarEdge by your side, here are the pivotal questions and strategies to empower your negotiations.
Part One: Negotiating with the Salesperson
Unlock behind-the-scenes car buying insights with CarEdge Data!
“Do you have a monthly budget in mind?“
Correct answer: I have a total out-the-door price in mind. I’d like to stay focused on that.
Wrong answer: Yes, I don’t want my monthly payment to be more than $700 per month.
Why: Once the dealer knows what your monthly payment goal is, they immediately start thinking about how much wiggle room they have for add-on products, incentives and other odds and ends of the deal. Once you share your desired monthly payment, you’ll be negotiating that number for the rest of the deal. This makes it alarmingly easy to lose sight of how much you’re actually paying for the car.
“How much cash do you plan to put down?“
Correct answer: I just want to know what the out-the-door number is, can we stay focused on that for now?
Wrong answer: I think I could put between $5,000 and $10,000 down. It depends on what the price of the car is, and how much you give me for the trade-in.
Why: This question is another tactic the salesperson uses to turn you into a ‘payment buyer’. Yes, you’ll eventually have to tell them what your down payment is, but do NOT volunteer that information too early in the negotiation! Car dealership salespeople are going to.
Note: Often, the salesperson will phrase this question as if it’s coming from the bank. For example, “The bank typically wants you to put 20% cash down or more. Were you planning on doing that?” You can still refuse to answer this question early on in the conversation. Remember, you’re still trying to get the out-the-door price from them. That’s the number that matters.
“I see you drove a nice car here today. Will you have a trade in?“
Correct answer: I haven’t decided yet. Once we’ve established an out-the-door number, we can discuss things like that.
Wrong answer: Yes of course, how much can you give me for it?
Why: You should always treat buying a car and trading in as TWO separate transactions, because they truly are. See what your car is worth with offers from multiple online buyers here.
Part Two: The Finance Office
These are the questions you’re most likely to encounter at the finance office. For even more tips, examples and advice, see our Finance Office Cheat Sheet. It’s one of our many free resources!
“Have you thought about what loan term you’d be happy with?“
Correct answer: I have thought about this and I’ve even been pre-approved with competitive credit unions, so I do understand what my loan terms should be in order to keep my payment affordable.
Wrong answer: No, I haven’t thought about it yet. Can you help me lower my payment even further?
Why: When you express uncertainty about your desired loan term, finance managers spot an opportunity to manipulate the loan term to make a deal appear more attractive. By extending the loan term, they can “lower” your monthly payments, even if it ends up costing you more in the long run due to interest.
“Would you consider financing with us?“
Correct answer: Yes, if you can beat the rate I have on my pre-approval from the credit union, I’d consider it. The rate and the payment would need to come down enough to justify it.
Wrong answer: Sure! That sounds easier.
Why: Be sure to mention that your payment would need to come down in addition to getting a lower interest rate. Why? All too often, the finance manager can offer you a slightly lower interest rate, only to trick you into add-on products later, meaning that your monthly payment ends up the same or even higher than it was originally.
“Here’s our menu of products. Let’s talk monthly payments!”
Are you interested in our tire care package for just $6 per month? Or theft protection for just $10 per month?
Correct answer: Thanks, but for each of these products, I need to see the total cost of the product, not just the monthly payment.
Wrong answer: Awesome, wow I see that this theft protection only adds $10 per month!
Why: Expect them to show you the monthly payment, not the total price of the products on their menu. You’ll have to ask for them to point out the total price. Remember this: A product that adds ‘just’ $10 to your monthly car payment over a 60-month loan term will actually cost you $600.
Would you pay $600 for something like tire protection or theft protection? Or, could you buy these products elsewhere for half the price? This is how you should think about the menu products.
The finance office is not the time to lose sight of the number that matters: the out-the-door price!
Ready to outsmart the dealerships? Download your 100% freecar buying cheat sheets today. From negotiating a deal to leasing a car the smart way, it’s all available for instant download. Get your cheat sheets today!
Check out these reader favorites and remember, knowledge is power!
In this market analysis driven by CarEdge Data, we’ll take you on a tour through the market day supply of new cars across all 50 states and break down the inventory for the five major automakers. Armed with data, you’ll be in the best position to negotiate a great deal on your next vehicle.
Looking for the best and worst states to buy a car? We’ll answer these questions and more with the latest data. You’ll also want to check out the states with the highest fees and taxes.
Love Data? We Do Too
At CarEdge, we leverage cutting-edge tools to dig deep into the auto industry. One crucial metric we focus on is ‘market day supply, also known as ‘MDS’. Essentially, it provides an estimate of how many days it would take to sell off the current inventory of vehicles at the present rate of sales, assuming that no new vehicles are added to the inventory.
In a balanced market, a 60-day supply of new cars is considered the standard, providing a decent equilibrium between supply and demand.
Anything substantially above this indicates an oversupply, while anything below 40 days suggests a shortage. This information serves as a starting point to identify potential negotiation leverage for smart car buyers like you.
Let’s dive in and take a look at automotive trends across the United States. We’re looking at overall new car supply in all 50 states, and supply numbers for the top-selling brands in the U.S.: Ford, Toyota, Chevrolet, Honda, and Hyundai.
Use the sort feature by clicking on the arrows at the top of each column.
There’s a lot to digest in the above table, so we’re going to focus in on the states with the highest and lowest new car inventory overall, and for each of the five best-selling car brands in America.
States with the Highest New Car Inventory
If you’re looking for more room to negotiate, consider buying a car in states with high inventory levels. Not sure where to start? Here’s our guide to buying a car in another state.
Vermont leads with an impressive 116-day supply, followed by Wyoming at 95 days, South Dakota at 94 days, and Alaska at 92 days. Other states rounding off the top ten in this category include Oregon, Hawaii, North Dakota, Rhode Island, Iowa, and Nebraska—all well above the 60-day norm.
States with the Lowest New Car Inventory
On the flip side, states like South Carolina, North Carolina, Georgia, Kentucky, New Jersey, Alabama, New York, Virginia, Arkansas, and Colorado have the lowest new car inventories, all hovering around the 60-70 day supply mark.
Negotiating a new car is certainly not impossible in these states, as our team of Coaches has helped hundreds of buyers in these states this year alone. But with the tightest inventory, it’s simply smart buying to be aware of the overall market from day one.
Why Are All “Low Inventory” States Above 60 Days?
You might be asking, if a balanced market hovers at a 60-day supply, why are the states with the lowest inventory still above this mark? Well, these numbers are an average across all brands—from the glut of Ram trucks to the scarcity of Hondas and Subarus. For specifics on make and model for any zip code or region, CarEdge Data has you covered.
Next, we’ll dive deeper and take a closer look at the five best-selling automotive brands in America. There are some BIG differences between the top players when it comes to inventory on dealer lots.
Ford Inventory Soars
Ford inventory is among the highest in the auto market right now, with the brand having a 97-day supply of new cars nationwide. In some states, Ford’s inventory exceeds 120-day supply.
If you’re eyeing a Ford, states like Alabama, Vermont, Illinois, Louisiana, and Connecticut offer the most room for negotiation due to 100+ day supplies of new cars.
Conversely, Wyoming, Montana, Kentucky, New Mexico, and Georgia are your least favorable states in terms of Ford inventory.
Notably, Ford’s electric Mustang Mach-E, traditional Mustang, and Explorer have the most supply, while the Maverick and Ranger are relatively sparse and tougher (but not impossible) to negotiate.
Toyota’s nationwide average stands at a tight 42-day supply. Vermont, Wyoming, Nebraska, Oregon, and South Dakota have the highest inventory for Toyota. In contrast, states like Arkansas, Alaska, Hawaii, Utah, and Oklahoma have the least Toyota inventory.
The Sequoia, Corolla, and Sienna are currently in high demand, all with less than 40-day supplies. The electric bZ4X, 4Runner, and Crown have the highest inventory numbers, and as a result, the highest negotiability from the get-go.
Chevrolet averages a balanced 61-day inventory nationwide. For Chevy, Hawaii, Wyoming, Alaska, South Dakota, and Oregon are your go-to states for choice and negotiability, while Utah, Missouri, Colorado, Michigan, and North Carolina are less ideal with tighter supply.
The Silverado and Equinox are most abundant on dealer lots. The Corvette, Trax, and Colorado have the least inventory.
Honda STILL Has Lean Inventory
Honda’s supply averages a mere 32 days nationally, owing to lingering effects of the supply chain shortages that every automaker previously dealt with. States like Vermont, Hawaii, Wyoming, Oregon, and California have the highest Honda inventory, but nowhere even comes close to Vermont.
There are just five Honda dealerships in Vermont, but between them there are 1,014 new Hondas for sale. Day’s supply sits around 180 days, which is highly unusual for Honda. Perhaps Honda buyers in New England should consider heading to The Green Mountain State for the greatest negotiability.
Arkansas, Idaho, New Mexico, Indiana, and Oklahoma offer the least room for negotiation with the lowest Honda inventory. When it comes to model inventory, the HR-V and Passport have the greatest supply nationwide, while the CR-V and Pilot are much harder to come by.
Hyundai’s Middle Ground
Hyundai has been steadily climbing the ranks in the battle for automotive market share. As Summer 2023 winds down, Hyundai’s inventory numbers are looking healthy, and notably better than competitors Honda and Toyota. There’s currently a 62-day supply of new Hyundai’s nationwide, with quite a bit of variability from one state to the next.
Hyundai inventory is most abundant in Oregon, Wyoming, Vermont, South Dakota, and Alaska. In contrast, Kansas, South Carolina, Florida, New York, and New Jersey have less stock.
The IONIQ 6 and IONIQ 5 are abundant, while the Venue and Elantra are in short supply. Hyundai and sibling Kia have really struggled to sell EVs ever since the revamped federal tax credit removed eligibility due to the ‘Made in America’ requirement.
Ready to utilize data for unparalleled negotiating leverage? We’ve got tools to suit your needs and budget. From free resources to expert car buying help, we’ve got it all. Enjoy these reader-favorite free car buying tools:
Ready to negotiate a sweet deal? Collaborate with a Car Buying Coach for insider-only insights or opt for a one-time consultation through CarEdge Consult. For the DIY aficionados out there, CarEdge Data provides the robust market intelligence you need to navigate your car buying journey.
Regardless of your budget, we have a plan to help you save thousands. Embark on your informed car buying adventure today with peace of mind! With CarEdge, you’ll know you got the BEST deal.