**Pro Tip 5: How to lease a car without worrying about a credit score (negotiating a car lease like a Tiger)
First, prerequisites from this lesson you should have learned from first 4 car leasing pro tips.
1. Filter out all cars first by they’re residual value (must be over 60% residual for 36 months), by calling/visiting dealers or using sites like http://www.cars.com/go/alg/index.jsp . Then out of those cars, figure which you like, how costly it is to maintain (some luxury car dealers like Audi have no maintenance plans and you have to pay for this so your warranty doesnt void), the money factor that will be included in the lease deal and finally the overall price of the car (which I will slap you if you do not negotiate to a couple hundred over invoice. Yes you want dealers to make money).
2. Know what you came to do and do it. Don’t you dare lease a car for over 36 months or buy it/plan to buy it at the end of a lease. I have your address.
3. You should NOT be driving a new ANYTHING while you are in consumer debt (all debt aside from student loans/mortgages). Leasing is slightly more expensive than other options and is a privilege for those no longer in a “save money” phase such as wealth building. Learn the difference and how to put a monetary value on “worry”.
Now you’re ready to figure out how to negotiate a lease.
**Step 1: DO NOT NEGOTIATE A LEASE BASED ON YOUR CREDIT REPORT. EVER. This is the number 1 new booty mistake and dealers can tell who you are if the first thing they say is lets see how your credit is and you say “ok”. I don’t care if you feel you have an 850 FICO, credit scores and credit reports only matter for two people – A. those who are bad at negotiating and B. those who are broke enough to need credit for the things they are interested in.
Though your goal is no monthly bills – ever, play up the dealer as if you are a typical broke person needing to pay the lease monthly. They should not know that you’re paying the lease in full. Tell them you’re too smart to run your credit at multiple locations (and you are indeed pricing out cars at multiple locations – make sure they know this). Tell them you qualify for Tier 1 financing (or Tier 1 + if at a Toyota or Lexus dealership) and that all numbers should be based on a 36 month lease, tier 1 credit & 12k miles/year.
The smartest thing you can do is base these negotiations off a national or local lease offer that these dealers use to get people in the showroom and then switch up the numbers on them.
And they will switch up the numbers and get just about everyone – but you.
**Step 2: Figure out how much power you have exactly and then figure out how to have more.
You should have ALL the power in any dealership negotiation while giving the appearance that the dealer has some as well. Still, the truth is they need you much more than you need them, never forget that. You are the way they pay their rent/mortgages. On the other hand, its just a car for you and you have options.
So how much power do you currently have?
-You have the cash to pay the ENTIRETY of the lease. This gives any dealer a hard-on, however, they are never to know this is your plan until the end.
-You have a car outside that runs perfectly and you are not trading it in. Make sure they know this. If you come in with a car story about how it just blew up or got stolen, they know they have you.
-As mentioned before, you have tier 1/tier 1 plus credit and can go to any dealership and get a car within seconds.
Now, how to have more power?
-Play their greed and sales quotas against them. The rumor is indeed true – if you go to a dealership at the end of a sales month, at the end of a quarter or during a big sales holiday weekend, they will jump quicker at lowball offers.
If you go inside a dealership during a combination of all three and on a car that holds its value, but for some reason they haven’t been able to move? You can basically drive it for at or even less than what the own dealership paid. For this you’d have to hire someone like me as this is a specialty trick few can do.
Otherwise, aim to pay a few hundred over dealer invoice. Find out the dealer invoice on http://www.truecar.com
-Explain that you are deciding to pay the entire lease (called a single pay lease) and watch them salivate. But only do this at the end of the deal.
-Prepare to do the walk out trick. This works and works exquisitely at the end of a sales month/quarter or holiday weekend. Make sure they have your cell phone number. Some dealers are stupid enough to let you walk, until their sales manager asks them what happened and forces them to call you.
-Bring someone who not only knows cars, car deals and who isnt broke but someone who knows car lease warfare!
**Step 3: Do the freakin math. Know that there will be a few scenarios you’re going to be hit with BEFORE you go into the dealership. If you havent done the math for these scenarios, after they present them to you, don’t feel obligated to answer right a way, tell them you need a moment alone.
Don’t overcomplicate the math either.
If a car with a $25k MSRP will be worth 60% of that price in 3 years (36 months), that means it will be worth $15k when you go to turn it in. Subtract $25k from $15k and you’ll essentially be paying for $10k worth of depreciation over those 36 months, plus tax, interest and fees.
$10k/36 months = $277/month.
$277 + 12% (tax, interest and fees) = $310.24
But remember – again, you aren’t paying MSRP, you’re paying a couple hundred over invoice. This means you’re really paying the depreciation of a $23k car becomming a $15k car. Using the same formula above that means you’re paying $248.88/month.
If you add up $248.88/month times 36 months, the total cost of that lease with all fees should be $8,959.68.
**Step 4: Check the credit & disclose the cash. Remember, all of this was being negotiated on tier 1 credit. Lets assume you have nothing but student loans on your credit report that have been paid for the last 3-5 years. You will indeed have tier 1 credit.
However, lets assume you worked hard enough to avoid student loans and don’t have anything on your credit report – nothing positive or negative – nothing. Then you have a few options:
A. Lease through the business you started. This is what I do. You will pay a slightly higher rate (because thats how business financing works). Then you introduce the prepayment of the lease. And then you don’t pay a slightly higher rate – in fact a much lower rate.
B. Understand that the first lease will be the spark. You will take out the normal 36 month lease at a reasonable rate (since you are prepaying) and then you will pay sell that car in 24 months. At this point your credit report will show a paid off lease and the world is yours. Go in for your next lease with nothing on your report but on time paid in full lease obligations (which arent debt).
C. Get a co-signer. If you do this, I will post nude pictures of you online that i created from photoshop. You don’t need a co-signer, you need power. Cash is power.
Once the credit is pulled and the dealer understands that you are prepaying the lease (called a single pay lease), take the numbers you worked out initially, the total cost for 30 months of $8,959.69 and figure out how much money your money is worth to you as well as to them.
There are mathematical ways to figure this out but here is an easier way.
Would you feel comfortable with a $1500 discount for easing the leasing company’s concerns of someone walking away from a lease? Would you feel comfortable with a $2k discount?
Remember, you have the power. Play them until you cant play them anymore. If you have to walk at a $1300 discount and they don’t reach out to you, then you know that was the lowest offer possible. Or you could go to another dealer and compare offers.
Once the deal is settled, for lets say, $1300 off the lease for prepaying it, you will have paid the equivalent of $212.76/month to drive a $25k worry free car.
There are a few sideline things to negotiate like wear and tear, lease termination fees etc. But if you focus on the above, you will be a lease Jedi.
(*Note: you can command these types of discounts with a clean credit report and a single pay lease option because you are risking the capital you lay out incase your leased car is totalled or stolen/unreturned. Since you’ve laid out the cash, its gone in this event. For this reason, leasing single pay is only for those who have strong enough cash positions to support this. Realize however, if you get a $2k discount on a lease, and your car was totalled during a lease in which you drove all but $5k of the car you prepayed, that loss would be more than paid for over a few years of leasing other cars. Imagine a lifetime of leasing 20 cars getting a $2k discount on each?)