Car Leasing Tips

Leasing was originally intended for businesses that wanted to avoid the high cost of vehicle ownership and maintenance. As new car prices kept edging upwards more and more, leasing became a new way of “selling” cars. Now, you need to understand what it really means and what you get (and don’t get) for your money in a lease.

Automobile leasing is not a simple matter. Cars depreciate in value over time. When you lease a car for two or three years, you are paying for the depreciation in monthly payments plus interest. At the end of the lease, the automobile can be either sold to you or someone else for its value at that point. There is no ownership, you simply pay for the use of the automobile. The manufacturer's warranty still covers the car for you whether you lease it or buy it.

The law requires disclosure by leasing companies of specific information and provides consumers with a description in writing of the lease's financial details. The purpose of the law (called “Regulation M”) is to allow consumers to compare one lease with another for the same vehicle and to compare leasing a vehicle with buying it on credit. However, the disclosure requirements do not apply to lease transactions over $25,000.

LEASING TERMS YOU NEED TO KNOW

LESSEE: The consumer.

LESSOR: The company that owns the automobile (usually the bank or finance company).

GROSS CAPITALIZED COST: The price of the car for leasing purposes. You want this number to be as low as possible.

CAPITALIZED COST REDUCTION: Amount of cash down payment, trade-in or rebate.

RESIDUAL VALUE: The automobile's value at the end of the lease. Sometimes called “lease-end value,” this is often described as a percentage of the Manufacturers Suggested Retail Price (MSRP). The higher the residual value, the lower your monthly payment will likely be. The residual value may be a negotiable figure. To determine it, many dealers consult a publication called Automotive Leasing Guide but some banks use their own guide book. Ask to see it if you aren’t sure that you are getting a fair deal.

RENT CHARGE: An amount paid by the lessee that usually includes principal, interest and profit.

MONEY FACTOR: This figure, also known as the lease rate, is the interest rate built into all leases. It is leasing's version of the rate of interest that is charged to people who buy on credit. Leasing companies do not usually disclose the money factor except to the Dealer.

READ ADVANDAGE / DISAVANTAGE OF LEASING

STEPS IN AUTOMOBILE LEASING

LEASING IS DIFFERENT FROM BUYING.
HERE'S HOW. . .