Leasing a Vehicle

Leasing a vehicle can be a good value for the consumer if:

• You drive less than 15,000 miles per year.
• You have little or no down payment or trade-in.
• You plan on having a new car every 2-4 years.
• You own a business or are self-employed.
• You view auto payments as an on-going, necessary household expense.

How a lease works

In a lease you are paying for the vehicle's depreciation during the term of the lease plus interest. You still must negotiate a selling price as though you were purchasing the vehicle. Never lease a car based on the monthly payment. The dealership sells the vehicle to a leasing company and then the leasing company essentially rents the vehicle to you.

Lease terms to be aware of

Residual is the value of the vehicle at the end of the lease term. Residual value is comparable to anywhere from 29% to 50% of the initial sticker price. You want to negotiate the highest residual value since this is equivalent to the vehicle's resale value at the end of the lease term.

Capitalization cost or cap cost is the actual purchase price of the vehicle. Negotiate the lowest possible cap cost. A low cap cost would be a figure from $300-$1,000 above dealer invoice for the vehicle.

Lease rate is comparable to an interest rate. You can find the actual annual percentage rate by multiplying the lease rate by 2400. A dealer should provide you with the lease rate.

To find the monthly lease payment

Subtract any rebate or trade-in from cap cost.

The above information should be understood to be a general discussion of the subject matter and DOES NOT constitute a legal opinion about the situation. For further information please consult a qualified attorney.

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