Here are the three things you need to know.
1. Find A Car With A High Residual Value
When you lease a car, you’re essentially paying for the depreciation that occurs from your use of the vehicle. Therefore, cars that hold their value well are generally cheaper to lease than those that don’t.
Back in December 2012, I found out that the Mercedes-Benz E350 BlueTEC sedan had the highest residual value of any car. Mercedes-Benz Financial Services (MBFS) estimated that the car would still be worth 74% of its manufacturer’s suggested retail price (MSRP) after two years of use at 10,000 miles per year!
Most cars have two-year residual value percentages in the sixties rather than the seventies -- so this was great news. With this in mind, I went to the local Mercedes dealer and picked out a 2013 E350 BlueTEC with an MSRP of $59,495.
2. Get A Big Discount On The Sales Price of the Car
This one sounds obvious. But many people don’t know that, just as if you were buying a car, the sales price of a car can be negotiated on a lease, too. Every dollar you save off the MSRP is a reduction in the depreciation expense you pay over the term of the lease.
From browsing car forums and car buying sites, I found that most dealers in Southern California were offering 15-18% off MSRP on E-Class sedans. Mercedes-Benz at the time was offering huge incentives to dealers in order to meet aggressive year-end sales targets.
I obtained quotes from a handful of dealers and asked the nearest dealer to match the lowest quote. They obliged and offered a $10,300 discount off MSRP for a price of $49,195.
At Leasehackr, we carefully track vehicle transaction prices to identify models that are likely to have large discounts.
3. Use Multiple Security Deposits (MSD) and Auto-Pay To Lower the Money Factor
In addition to paying for depreciation, a lease also involves finance charges. You are essentially borrowing an amount equal to the price of the car, and you will pay some interest on that.
There are a few ways to minimize finance charges. With Mercedes-Benz and several others, you can lower the money factor (the finance rate for a car lease) by putting down multiple security deposits. Unlike a down payment, security deposits are fully refundable at lease end.
I put down ten security deposits (the maximum allowed by MBFS) totaling $3,500, which saved $65 per month by nearly halving the money factor rate. Finally, MBFS offers a money factor discount if you utilize automatic bill payments. This shed $10 further off the monthly payment.
The E350 BlueTEC had the winning trifecta of a high residual, a large discount, and a low money factor.
|2013 Mercedes-Benz E350 BlueTEC - Actual Lease|
|24-Month Residual||$44,036 (74% of MSRP)|
|Money Factor||.00080 (with security deposit and auto-pay)|
|Lease Payment||$289 per month ($315 with 8.75% sales tax)|
|Due at Lease Signing|
|First Month's Payment||$315|
|Acquisition Fee (did not capitalize)||$795|
|Registration & Other Government Fees||$436|
|Dealer's Document and Filing Fees||$109|
|Refundable Security Deposit||$3,500|