Financing 201 | How to Lease a Car | How Does Leasing a Car Work
Some people lease a car every few years, and they enjoy driving a new vehicle with all the latest technology and safety features. The car is under factory warranty throughout the entire lease term, so major repairs are covered. Plus, lease payments are usually smaller than loan payments. A person leasing a vehicle is only paying the difference between the retail price and the car's projected worth at the end of the lease term.
What is Car Leasing?
Here are a few of the terms you'll hear at a dealership and see in a lease contract:
Money Factor/Lease Rate: These terms, used interchangeably, make up the interest rate you'll pay for the lease. This rate often depends heavily on credit scores.
Depreciation: The vehicle's new value minus the projected value at the end of the lease term.
Residual Value: The car's wholesale value at the end of the lease.
Manufacturer's Suggested Retail Price (MSRP): This is the car's full retail price. This number is negotiable. Online research will help you determine what other people pay for the same year, make, model and trim level.
Capitalized Cost (Cap Cost): This is the base price of the vehicle. It's always lower than the MSRP, and you can probably negotiate the price of the leased vehicle down toward this number.
Lease Term: Usually stated in months, normal lease terms are two, three or four years.
Penalties and Additional Charges: These costs depend greatly on whether you exceed the mileage limits in the lease contract and the condition of the car at the end of the lease.
Purchase Option Agreement: When the lease is over, you'll have the option to purchase the vehicle for its residual value, as stated in the contract. If you want the option to buy the car, know that a small monthly charge is added to your payments.
Mileage Allowance: When you lease a vehicle, you can drive it a specific number of miles during the term of the lease. If you put more miles on the car than this amount, you'll incur an additional per-mile charge when you turn in the car at the end of the lease term.
How an Auto Lease Works
When you lease a car, you enter into a contract that gives you the right to take over ownership of the vehicle for a specific amount of time. During this time, you'll make an agreed upon monthly payment. When the contract is over, you'll return the vehicle to the dealership.
When you finance a car, you own it at the end of the contract term. People who enter into a lease agreement understand that although they'll have the option to purchase the car for its residual value at the end of the lease, they aren't working toward ownership with a lease contract.
How to Figure Out the Cost of a Lease
The simplest way to play around with lease numbers is to use an online calculator like the one at Edmunds. This lease calculator even populates some of the numbers for you based on your zip code. If you have a car to trade as part of the deal or want to make a down payment, you can factor those into the deal. For a simpler approach or a quick estimate, try the car lease calculator at Bankrate.
Remember, lease terms are negotiable. If you feel like the terms aren't quite right, feel free to say so and ask for a better deal.
Apply today for Boro Auto Lease and drive your dream car home!