8 Things You Should Know Before Leasing A New Car

Leasing 101

Aug 10

Should I lease? What is leasing, anyway? Here's what you need to know.

1. Leasing Is Paying For What You Use

Say a car costs $50,000 new and is expected to be worth $32,000 after three years of use. That’s $18,000 in depreciation. Divide that amount by the length of the lease (in this case, 36 months) and you get a monthly cost of $500.

Finance charges and taxes get added on top, but in essence, leasing is paying for the depreciation that occurs over time from your use of the vehicle. At the end of the lease, you return the car or buy it outright for its remaining value (in our example, $32,000).

2. Some Cars Lease Better Than Others

Two cars with the same sticker price can cost wildly different amounts to lease.

The difference comes down to each manufacturer's lease program. Automakers publish new programs every month, setting three things:

Residual value: The car's estimated value at lease-end, as set by the leasing company (usually the finance arm of an automaker).
Money factor: The interest rate, expressed differently.
Incentives: When available, these lower the total cost of the lease.

The ideal combination is a high residual value, a low money factor, and generous cash incentives. Use Rate Findr to get current and accurate information on rates and incentives.

*Look up lease programs to find out which models within a certain category lease well.*

3. Leases Can Be Negotiated

Advertised “lease specials” create the impression that lease prices are set by the manufacturer—as if they were promotional menu items from McDonalds or something.

In truth, individual dealers set the selling price, and then apply the manufacturer’s lease program to arrive at the actual cost. A manufacturer’s lease special simply assumes a particular selling price that they expect dealers to honor. The selling price is absolutely negotiable.

4. Watch Out For Marked Up Rates And Fees

Aside from setting the sales price, dealers can also mark up the money factor. This may result in hundreds or thousands of extra dollars paid over the course of a lease.

With a lease, you’ll also pay an acquisition fee and often a disposition fee. These are legitimate charges, but some dealers inflate them too. In exchange for paying these fees, you benefit from certain inherent advantages of leasing—which we explain below.

5. Someone Else Takes On The Risk Of Depreciation

When an automaker sets a residual value, it often overestimates the car’s actual lease-end value.

For example, Leasehackr leased a Mercedes-Benz E 350, which had a residual value of $44,036 after two years of use. In actuality, the car was worth about $34,000 on the open market when it came time to return the car.

By leasing, we avoided $10,000 in depreciation that would have otherwise been incurred if the vehicle were purchased instead. This amounts to over $400 per month saved!

Some automakers are spot-on with their estimates. Others intentionally inflate their residual values to make their leases cheaper. And sometimes they just get it wrong. Regardless, when you lease, someone else takes on the risk and uncertainty of depreciation.

*New EVs often depreciate heavily. Leasing can shield you from actual depreciation.*

6. Sometimes, You Can Cash Out On Lease Equity

Sometimes, the opposite scenario happens: your car is worth more at lease-end than its official residual value. This might occur if your car becomes highly desirable in the used car market.

With a small number of automakers, you can actually arrange a third-party to buy out the car. If the third-party offers you, say, $35,000 for the car, but the residual value is $32,000, then they will write you a check for the difference ($3,000).

As of 2026, most automakers have stopped allowing this practice, making it difficult to cash out on lease equity. However, Equityhackr will help you bypass the third-party buyout ban, allowing you to sell your leased car for a profit.

7. You Only Pay Sales Tax On The Cost Of The Lease

Buy a car and you pay sales tax on the full selling price. This can be thousands of dollars you never see again, even if you sell the car a few years later.

In most states, you pay sales tax only on the cost of the lease. These tax savings more than make up for the acquisition fee required on a lease. There are exceptions: a handful of states, Texas among them, tax the full selling price rather than just the leased portion.

8. Never Put A Down Payment On A Lease

There are two good reasons for this:

You can lose it. If your car is totaled or stolen, you can walk away from a lease without penalty (thanks to GAP insurance). However, you won’t always get your down payment back, so don’t pay one to begin with.
It hides the real cost. A down payment obscures the cost of the lease and makes it more difficult to compare deals. Any car can be leased for $299 per month if there’s a sufficient down payment.

Instead, you can look into placing a security deposit, which lowers the money factor and could save you thousands in finance charges. Brands that offer a multiple security deposit (MSD) program include Audi, BMW, INFINITI, Lexus, Mazda, Mercedes-Benz, MINI, Nissan, and Toyota.

Note that a $0 down payment lease could still require money upfront: the first month’s payment, taxes, and license and registration fees. You could choose to roll in those taxes and fees for a drive $0 drive-off lease.