Leasing a car may only look cheaper

You need to focus on three things, he says: the capitalized cost or price of the vehicle, the residual value or what it will be worth at the end of the lease, and the money factor or interest you’ll pay to finance the deal.

Negotiate hard on that capitalized cost, just as you would haggle over the sales price if you were buying the vehicle. Walsh believes a fair capitalized cost is no more than the manufacturers' suggested retail price. Then deduct the down payment (or capitalized cost reduction as they call it), your trade-in and any rebate.

The residual value is fixed and non-negotiable. It’s based on what the leasing company has determined the value of that vehicle will be at the end of the lease.

The money factor, which is negotiable, should be competitive with market rates for car loans. You can find online calculators that let you compare rates. Keep this in mind: A dealer is not required to tell you what interest rate you will pay to lease that vehicle. Federal law only requires that information be disclosed with a purchase.

Here are some dos and don'ts of leasing:

Look for a vehicle that holds its value. Cars and trucks with a high resale value are better lease options because their residual value (what they’re worth at the end of the deal) is higher. That means you are financing less depreciation during the term of the lease. Check Consumer Reports, Edmunds.com or Kelly Blue Book to see which vehicles hold their value the best.

On the Web Consumer Reports: Leasing pros, cons Bankrate.com leasing calculator Edmunds.com: Leasing Tips

Go short. Long-term leases are risky. If for some reason you decide that vehicle is not for you, you can’t just walk away from the lease. You’ll pay a stiff penalty to terminate early. Most consumer experts recommend a three-year lease.

Check the mileage allowance. You want a mileage allowance that is going to be slightly higher than what you will drive each year of the lease. You’ll pay 15 to 30 cents a mile for each mile you go over the limit. If you can’t predict how much driving you’ll do in the next three years, you probably don’t want to lease.

Check the math. Doug Walsh tells me dealers prefer to lease cars, “because they can hide your cash, trade-in, and rebate on these complex line items on the lease agreement. You need to make sure the dealer hasn’t “creamed off” those savings by bumping up the capitalized cost or adding high cost extras, such as a service contract that doesn’t kick in until after the lease ends. Before you sign, verify all the numbers and understand all the terms.

Take the lease to full term. Months before your lease expires, the dealer or manufacturer may encourage you to “trade-in” that car for a new one.

“If you do, you’re going to take a bath,” says Doug Walsh. “The dealer cannot forgive those payments. They’re going to get paid, and you’re going to pay them whether you realize it or not.” Those leftover payments will just get rolled into the price of the next vehicle. Early termination is always extraordinarily expensive.

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