Never walk into a dealership and announce that you want to lease a car. It isn’t a good idea to talk about payments right away either. You should not do these things because any competent dealer can find a way to make a car fit your budget while maximizing his profits if he knows how much you are willing to spend. You don’t want to spend the maximum amount; you want to negotiate the best lease terms you can.

You can prepare to negotiate by knowing which car you want, how much you can afford to pay for the car, and the car’s invoice price. You can further prepare to negotiate by selecting the lease term for your vehicle and learning the vehicle’s depreciation schedule. The vehicle’s depreciation schedule is a schedule of how much the vehicle is estimated to be worth after specific periods of time. For example:

Figure 1: Sample Depreciation Schedule of a Typical Vehicle

             Period            Depreciation     Residual           Loss in

                                    Percentage       Value         most recent period

            12 months        25%                 75%                 25%

            24 months        38%                 62%                 13%

            36 months        43%                 57%                 5%

            48 months        50%                 50%                 7%

            60 months        62%                 38%                 12%

            72 months        77%                 23%                 15%

 Figure 1 shows a typical depreciation schedule. As the example shows, the vehicle depreciates 25 percent in the first twelve months. After twenty-four months, the vehicle depreciates another 13 percent, for a total of 38 percent depreciation. After thirty-six months, the vehicle depreciates another 7 percent, for a total of 43 percent depreciation. The percentages on the right-hand side of the chart represent the residual value, or how much the vehicle will likely be worth at the end of each lease period. Know the depreciation schedule for the car you want to buy so you can determine the residual value at the end of the lease.

There are a number of residual guides, such as the Kelly Blue Book (www.Kbb.com) or Edmunds (www.Edmunds.com), that you can refer to to determine what a vehicle’s residual value will be at the end of a lease. When you are looking up a residual guide, the relevant information is the year of the vehicle, the make, the model, and the terms of the lease.