If you have never leased before, we are here to help you disseminate the information. A lease is simply a fixed, long-term contract, typically three (3) to four (4) years that enables you to “rent” the car. The advantages of a lease are many but the two key ones include:
Buyers who lease will want to understand their driving behaviors – for example, make sure you don’t drive beyond the maximum mileage each year, i.e. 12,000 miles a year, as there are fees for every mile beyond that.
Leasing a vehicle has many advantages. Knowing what type of mileage you drive each year will help determine if you are a good candidate to lease.
When leasing, you are required to pay your first payment upfront. This is considered a security deposit, which is typically equal to your monthly payment and license fees.
Below find some definitions to common terminology related to leasing to help you navigate through the process:
Capitalized Cost or Lease Price: When you sit down and agree with the sales person on a price for a leased car, this becomes the capitalized cost, or “cap cost.” Cap cost is also known as lease price. If you haven’t fully paid off the vehicle you’re trading, cap cost would also include any remaining loan balance.
Closed-End Lease: In a closed-end car lease, you may return the car at the end of the lease and “walk away.” You also have an option to purchase the car at the end of the lease. The residual value of the car at the end of the lease had already been determined when you initially signed the lease. If you choose, you may pay the residual value of the car plus a processing fee and the car is yours. This is the most popular type of car lease.
Open-End Lease: In an open-end lease, the market value of the car is determined at the end of the lease contract. This cost is then compared to the pre-determined residual value of the car and when you turn in the car – you will pay the difference.
Depreciation: The difference between a vehicle’s original value and its value at lease-end (called residual value). Depreciation is the primary factor that determines the cost of leasing.
Down Payment: The amount of cash you put down to reduce the cost, which will then determine your monthly payments. It is subtracted from the car’s cost, before the monthly payment is calculated.
Gap Insurance: Insurance purchased to protect the car’s value if it is involved in an accident, thus reducing the value of the car. This insurance covers the difference between the new value of the car and what the customer owes for it.
Lease Term: The length of time a car is leased, usually expressed in number of months. Typical leases are 24, 36, or 48 months. If you plan on keeping a car longer, we may suggest buying the car rather than leasing it.
Manufacturer’s Suggested Retail Price, or MSRP: MSRP is the full price for a vehicle as displayed on its window sticker, including optional packages. Dealer fees are not considered part of MSRP, although these charges are part of the overall cost of the vehicle.
Money Factor: The same interest that you would pay when buying a car. This interest is expressed as a money factor, sometimes called lease factor or factor.
Residual Value: The wholesale worth of a car at the end of its lease term, after it has depreciated. The higher the residual value, the more the car is worth at lease-end and the lower your lease payments.