Friday, March 16, 2012

How To Lease A Car And Understand The Process

You think you've decided to lease, but you'd like to make sure you know HOW to lease a car! What exactly do I do after I see the newspaper ads that tell me what deal is available. At first, there may be a sense of overwhelm but leasing can be clearly made simple and understood. What exactly is the process of leasing? Leasing is not renting, but rather paying for the depreciated value of the automobile during the period that the leasing company allows you to drive it. All major manufacturers have a parent leasing company that seems invisible as they work side by side with the dealership. Most leases are for a period of 24, 36 or 48 months although some use an odd number like 39 months. This is referred to as the term. You are responsible for paying the depreciated value of the car along with an interest rate (they bought the car for you remember?). There is always a limit to the number of miles per year you can drive usually 12,000 (sometimes 10,000 or 15,000).

You think you've decided to lease but you'd like to make sure you know HOW to lease a car! Knowing how to lease a car means you'll need to know some leasing terms: cap cost, adjusted cap cost, terms, and money rate. I'll explain these below!

1) How do I know I'm getting a good deal?

Know this! The price, or MSRP of the car is negotiable in a lease, just like when you buy (although some salespeople may wish you didn't know this!). In leasing terms, the MSRP is called the Capital (Cap) Cost. Do your research and find the invoice price (there are many good sources online such as and always negotiate UP from the invoice, (not DOWN from the MSRP. After subtracting your trade in and any other negotiated money off the cap cost, your leased amount will be the adjusted cap cost.

2) What aspects of the lease can I control and which are fixed?

The leasing agent sets certain parameters that can't be negotiated. The residual is the amount the leasing agent determines the car will be worth when the lease is completed. The higher residual means less depreciation and therefore the less you'll pay when leasing. Anything over 50% residual is considered an excellent (Good for you!).

The money rate is the financing rate (interest rate). This is usually a number after a decimal point, like.00253 (to convert this to APR that is understandable, always multiply this figure by 2400..00253 X 2400 = 6.07%APR Rates should be competitive with new car interest rates.

3) What should I know before I walk into a dealership?

Definitely know your sticker price and invoice price. Know your terminology. If you know the details of leasing the salesman won't play games with you. Ask the money rate, residual and terms and negotiate as you would when buying a new car. There are excellent car lease calculators online that can ensure that your numbers add up to the same numbers you are getting from the salesman when you are given all the information.

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