Auto leasing can be a great option for those who want to drive a new car without committing to a long-term purchase. However, navigating the world of auto leasing can be confusing, especially if you're not familiar with the terminology. In this article, we'll provide you with an overview of the most important auto leasing terminology to help you better understand the leasing process.
Capitalized Cost
The capitalized cost, also known as the "cap cost," is the negotiated price of the car you're leasing. This is the most important factor in determining your lease payments. The cap cost can be negotiated just like the purchase price of a car.
Residual Value
The residual value is the estimated value of the car at the end of the lease term. This is an important factor in determining your lease payments. A car with a higher residual value will have lower lease payments than a car with a lower residual value.
Money Factor
The money factor is the interest rate you'll pay on your lease. It's expressed as a decimal, rather than a percentage. To convert the money factor to a percentage, multiply it by 2400. For example, a money factor of .0025 is equivalent to an interest rate of 6%.
Lease Term
The lease term is the length of the Auto Leasing agreement. Auto leases typically last for 24 to 36 months. The longer the lease term, the lower your monthly payments will be. However, a longer lease term means you'll pay more in interest over the life of the lease.
Mileage Allowance
The mileage allowance is the maximum number of miles you can drive during the lease term without incurring additional fees. The standard mileage allowance is usually around 12,000 to 15,000 miles per year. If you think you'll exceed the mileage allowance, negotiate a higher allowance or a lower fee for additional miles.
Acquisition Fee
The acquisition fee, also known as the "bank fee," is a fee charged by the leasing company to cover the administrative costs of setting up the lease. This fee is typically around $600 to $900.
Security Deposit
A security deposit is a refundable deposit that's required by some leasing companies. The deposit is used to cover any damages or excess mileage at the end of the lease term. The amount of the security deposit is usually equal to one month's lease payment.
Disposition Fee
The disposition fee is a fee charged by some leasing companies at the end of the lease term. This fee covers the cost of inspecting and preparing the car for resale. The disposition fee is usually around $300 to $500.
Gap Insurance
Gap insurance is an insurance policy that covers the difference between the amount you owe on your lease and the actual value of the car if it's totaled or stolen. This is important because the insurance company will only pay the actual value of the car, which may be less than the amount you owe on your lease.
Excess Wear and Tear
Excess wear and tear is damage to the car that's beyond normal wear and tear. This includes things like dents, scratches, and other damage. If the leasing company determines that there's excess wear and tear on the car at the end of the lease term, you'll be charged for the repairs.
Early Termination
Early termination is the termination of the lease agreement before the end of the lease term. This can be expensive, as you'll be charged for any remaining payments on the lease, as well as any fees and penalties associated with early termination.
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