Leasing Terms Explained - Part 4
Miscellaneous Fees
There are usually an number of assorted fees associated with a lease. These fees
may include an acquisition fee-a sort of processing fee and/or a disposition fee
for getting the car ready for sale at the end of the lease.
Money Factor
The most common way to express the base interest rate of a lease is as a money
factor. If you multiply a money factor by 24 (or 2400, depending on how the
money factor is expressed), the result will be equivalent to the base interest
rate. The money factor of most leases is known by a dealer's sales staff.
The money factor is the cost of money, just as the interest rate. However, money
factors are used almost exclusively in leases, whereas interest rates are used
everywhere else.
Monthly Payment
The amount that must be paid each month to satisfy the lease contract. It is
common for the monthly payment shown in lease advertisements to exclude any
applicable taxes which will add to the amount paid each month.
Net Capitalized Cost
This is the price of the vehicle after deducting any dealer participation,
manufacturer discounts, and cap cost reduction ('down' payment) from MSRP.
Net Interest Rate
This is the total interest rate for the lease. It represents the true cost of
the lease offer. Because it considers all factors that influence the cost of the
lease, it is directly comparable to bank and credit union loan rates. The lower
the net interest rate, the lower the cost of the lease.
Opportunity Cost
The cost of what you didn't do. For instance, if you have the cash to buy a car,
the opportunity cost of the purchase is the interest lost on the cash you used
for the car. One of the often-cited advantages of leasing is that it frees up
your money to invest elsewhere.
Purchase Option
Most closed-end leases grant the lessee an option to purchase the vehicle at the
end of the lease. The end-of-lease purchase price is often referred to as the
residual value. Check the lease contract before signing to ensure that there is
a purchase option. The lessor must disclose the purchase option price prior to
your signing the lease contract.
Purchase Price
This is the price you would expect to pay for the vehicle if you were financing
or buying the vehicle. To determine the purchase price, start with MSRP and
subtract any manufacturer discount, and dealer discount that you negotiate.
Purchase price is a key determinant of the true cost of a lease. Purchase price
less your down payment is the net capitalized cost.
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Part 3
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Leasing Terms - Part 5