Leasing Terms Explained - Part 5
Purchase Price Discount
If the final purchase price of the vehicle is less than the target purchase
price, then there is a benefit to you as the lessee because you will have to pay
for less of the vehicle's value over the lease term resulting in a reduction of
the net interest rate.
Purchase Price Penalty
If the final purchase price of the vehicle is more than the target purchase
price, then the amount of the car you'll be paying for is increased which
results in an increase to the net interest rate.
Refundable Deposit
This is a refundable deposit required at lease inception. In some cases it may
be used to satisfy the final monthly payment. It is sometimes called a security
deposit.
Residual Discount
If the end-of-lease purchase price is greater than the expected end-of-lease
value (expected residual value) then the dollar difference represents the value
of the vehicle that you will not pay for during the lease.
Residual Penalty
If the end-of-lease purchase price is less than the expected end-of-lease value
(expected residual value) then the dollar difference represents the additional
value of the vehicle you'll pay for during the lease.
Residual Rate Discount
This measures the positive impact on the net interest rate of a residual value
that is set too high. It is shown as a negative number to reflect the decrease
in the net interest rate that results.
Residual Rate Penalty
This measures the negative impact on the net interest rate of a residual value
that is set too low. It is shown as a positive number to reflect the increase in
the net interest rate that results.
Residual Value, Expected
This is the projected expected value of the vehicle at the end of the lease.
Residual value is a measure of the vehicle's expected depreciation.
Residual Value Stated
The stated residual value is the same as the end-of-lease purchase price. The
higher the stated residual value of the car, the lower your monthly payments.
Stated residual value may be higher or lower than the expected residual value.
Stated residual value also determines whether you should buy the vehicle at the
end of the lease. If at the end of a lease, the vehicle's market value is less
than the stated residual value, the lessee would be prudent not to purchase the
car. On the other hand, if the actual market value were greater than the
predetermined residual, then the lessee should buy the car, sell it, and pocket
the difference.
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- Part 4
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Leasing Terms - Part 6