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You've had enough of taking the bus and asking friends for rides—but you don't want to add a hefty car payment into your monthly expenses. Good news: You might be able to lease a new car for lower monthly payments than buying the same vehicle. But when is the best time to lease a car? In general, the best times to lease a car are the same as the best times to buy one.
Leasing a car essentially means renting it from the dealer for a set period—typically 24 to 36 months. Similar to financing the purchase of a car, you'll make a down payment and then make fixed monthly payments over a set period of time. When the lease ends, you'll return the car to the dealer; you may also have the option to trade it in for a new lease, extend your existing lease or buy the car.
Here's what you should know about the best times to lease a car, how to decide if leasing is right for you, and tips for negotiating the best auto lease.
Most Affordable Times to Lease a Car
Just as with buying a car, you can often get better deals on leasing a car at certain times of the year. If you can, waiting until the time is right can help you save big.
- When latest models come out: Most carmakers release new models in the fall, but that's not always the case, so check manufacturer websites to see when the new model year of the car you want will come out. Dealerships are always eager to clear out last year's model to make room for new ones, so there may be special lease offers to be had. Just keep in mind you'll be limited to stock on hand.
- The holidays: Dealerships often hold sales on holiday weekends and over the winter holiday season. In general, if a three-day weekend is on the horizon, expect to see some lease specials. Keep your eyes out for deals on Memorial Day, President's Day, July Fourth weekend and Labor Day.
- The end of the month, quarter or year: Car dealerships typically earn bonuses for hitting monthly, quarterly and annual sales goals. Sales associates looking to meet their quotas may be more motivated to bargain when the bonus period is coming to an end. Late December, when the holidays and monthly, quarterly and year-end goals all coincide, can be an especially good time to score a deal.
You may also be able to find special lease offers for certain demographics. For example, in May and June you might see discounts for new college grads; around July Fourth, Memorial Day or Veterans Day, you might see deals for members or veterans of the military. Watch manufacturers' and dealers' websites for news about such offers.
Tips for Negotiating Your Car Lease
Lease prices aren't set in stone. If you're willing to do some homework and negotiate, you may be able to lease the car you want for less.
Start by checking your credit report, which you can do for free through AnnualCreditReport.com. You can also get your credit report and score for free directly through Experian. You'll need good credit, generally defined as a FICO® Score☉ of at least 670, to qualify for most leases. If your score isn't up to par and you don't need the car right away, focus on improving your credit score first.
A few things you can do to improve your credit scores:
- Pay all your bills on time.
- Get current on any past-due accounts.
- Pay down your credit card balances to improve your credit utilization ratio.
- Avoid opening new credit accounts but keeping old credit card accounts open, since they can lengthen your credit history and reduce your credit utilization.
- Sign up for Experian Boost®ø, a free service that adds your on-time payments of utility, cellphone and other bills to your credit report.
Next, do some comparison shopping. Do your research to find a vehicle you like and can afford, then compare lease prices and offers at different dealerships. You can go online to check prices and email or call dealers for more information.
Once you've found an appealing lease offer, it's time to start negotiating. As you review the lease agreement, know what you can and can't negotiate. The residual value, which is the projected value of the car at the end of the lease, is generally non-negotiable. Same with the acquisition fee dealerships charge to set up the lease.
However, you may be able to negotiate other fees, such as the disposition fee you're charged when returning the car. If you drive a lot, see if you can adjust the mileage allowance so you don't get dinged for excess mileage when you return the vehicle. Are you trading in a car? Getting it in tip-top shape before it's appraised can help maximize its trade-in value.
The gross capitalized cost, which is the current market value of the vehicle, is the basis for your lease cost. Check out what other dealers are charging to sell or lease the same model and trim. If you can find a better deal elsewhere, that might help you negotiate a lower capitalized cost and reduce your lease payments. The "money factor," which is essentially the interest rate on the lease, may also be negotiable if you have a good credit score.
Is Leasing a Car a Good Idea?
Whether you should buy or lease a car depends on many factors, including your budget, your financial goals and what you want from a vehicle. Here's a look at the pros and cons.
Benefits of Leasing
- Lower down payment: When you buy a car, getting an auto loan usually means putting down at least 10% of the vehicle's price. Lease down payments aren't usually that high. For example, a 10% loan down payment on a 2020 Toyota Camry LE (MSRP $24,970) would be $2,497, but the same car can be leased for a $1,999 down payment.
- Lower monthly payments: Compared with buying the same vehicle, your monthly lease payments would typically be lower than loan payments would be. You might be able to afford to lease a car you couldn't afford to buy.
- Drive a newer car: Do you want to drive a newer model car with the latest features? Selling or trading in your car every few years can be expensive, not to mention a hassle. Leasing lets you enjoy a new car for a few years, then simply return it when it's no longer the latest model.
- Fewer maintenance headaches: Although you are responsible for maintaining the leased car, new cars are less likely to need major repairs, so maintenance costs should be low. Leased cars are generally under the manufacturer's warranty during the lease term, so if there is a major problem, the warranty is likely to cover it.
- No need to sell the car: When the lease is up, you can simply hand over the car to the leasing company and pay any required fees. There's no need to prepare a car for sale or trade-in, worry about getting the best price for it, or go through the hassle of transferring title. If you know you'll only need a car for a few years, a lease could be a simple solution.
Drawbacks of Leasing
- Higher insurance costs: Leasing companies may require you to get gap insurance—coverage that pays the difference between what your auto insurance company pays out and the leased car's value if it's totaled. Whether this is rolled into the lease cost or paid out of your pocket, it's an additional expense to consider. You'll also likely need to carry more insurance coverage, including comprehensive and collision, that isn't required on a car you own outright.
- Potential fees and penalties: When you turn in your leased car at the end of the lease, it should be in like-new condition. That can be tough to do if you have kids or pets, or occasionally eat a meal on the go. Some normal wear and tear is expected, but anything beyond that comes with consequences. If you return the car with stains on the upholstery, scratches or dents on the exterior, or more than your allotted mileage—typically 10,000 to 12,000 miles annually—you'll have to pay a price.
- Difficult to get out of: If you own a car, you can sell it at any time—but getting out of your lease may not be so easy. Many lease agreements impose penalties for early termination.
- Higher total cost: Your monthly lease payments may be low, but leasing tends to cost more in the long run, especially if you were to buy a car and drive it for many years.
Consider the Toyota Camry example above. Assuming you have good credit, you can lease a Camry LE (MSRP $24,970) for $229 per month for 36 months. As of October 2020, you can nab an offer to buy it for 0% APR for 60 months, with a monthly loan payment of $416.
At the end of 36 months, you'll have paid $10,243 on the lease only to turn it in now that your time is up. Need another car? You'll have to start a new lease or come up with a down payment to buy a car.
If you finance the car, on the other hand, it will be worth $9,502 by the time you're done paying it off. You could then sell or trade in the car and get a hefty chunk of change to put toward your next car. Or you could keep the car, have no car payment and use that money for other things. Want to drive 100,000 miles a year? You can do that, too, with no penalties to pay.
If you don't mind driving the same car for several years, buying a new car and keeping it generally makes more financial sense than leasing. If you can't afford a new car, buying a certified pre-owned vehicle is a way to drive a relatively new car for less.
What Credit Score Do You Need to Lease a Car?
In most cases, you'll have an easier time leasing a car if you have a good credit score, which means a FICO® Score of 670 or higher. A good or excellent credit score generally qualifies you for a lower money factor, which can reduce your monthly lease payment.
If your FICO® Score is fair (between 580 and 669) or poor (579 and under), you'll find it more difficult to lease a car. If you do qualify for a lease, it will likely come with a costlier money factor. You might have more restrictions on your lease, higher fees and a more limited selection of vehicles to choose from. The leasing company will require you to buy auto insurance coverage to protect the vehicle, and poor credit can make auto insurance more expensive in most states.
Some lease companies lease used cars, and these leases can be easier to qualify for with poor credit. However, driving a new car is a key benefit of leasing, so leasing a used car might defeat the purpose. If your credit is poor, it's often easier and more affordable to get a loan for a used car than it is to lease a new one.
If you do lease a car, managing your lease payments responsibly can help improve your credit. As with car loans, lease companies report your monthly payments to the major credit reporting agencies. If you make your monthly payments on time, you'll help to build a credit history and potentially lift your credit score. A late or missed payment will hurt your credit score, so be sure to stay on top of your lease payments.
Getting the Best Auto Lease Terms
Having a good credit score can help you get the best terms on your auto lease. Before you start shopping around for the best lease deals, check your credit report and score. If you discover your FICO® Score is under 670, and you don't need the car immediately, taking some time to improve your credit score before you apply for a car lease could save you money and make it easier to lease the car of your dreams.