The leasing industry is a world unto itself. It even has its own language. To be an effective negotiator, you must have a basic understanding of major lease terms and conditions. Print out this section. Take it with you, when you shop for a lease, so that you will feel more confident as negotiate with the leasing representative.
Acquisition Fee (or Assignment Fee): Additional fee charged by the leasing company, usually ranging from $350 – $600. Many companies include this fee in your monthly payment. Some require you to pay it, in full, at the inception of the lease.
Adjusted Capitalized Cost (or Net Capitalized Cost): The total price of the vehicle ("Capitalized Cost"), less any deductions that reduce the price of the car. Typical deductions: the down payment, trade–in credit and factory–to–dealer incentives. A major component in the formula used to calculate your monthly payment.
Capitalized Cost: The total price of the vehicle, including any add–ons, extra warranties, insurance, rust proofing and any other options (i.e., sunroof, LUXURY cd player, etc.) that you select.
Capitalized Cost Reduction: Any type of credit which reduces the capitalized cost prior to the calculation of the monthly payment (i.e., cash down payment, trade–in credit, factory–to dealer incentives, etc.).
Depreciation: The value a vehicle is projected to lose during the lease term. This represents the difference between the adjusted capitalized cost and the residual value.
Formula:Adjusted capitalized cost - residual value = depreciation
Disposition Fee: A charge imposed by leasing companies to compensate them for the expense of taking back the vehicle at the end of the lease term and preparing it for sale. Not every leasing company charges a disposition fee. READ THE CONTRACT.
Down payment: An amount you pay at the commencement of the lease in order to lower your monthly payment. It must be subtracted from the car´s capitalized cost, or price, before the monthly payment is determined.
Early Termination Fee: A penalty added to the amount you owe, in the event you terminate your lease prior to the end of the term. Don’t minimize its impact. This could add several thousands of dollars to your obligations.
Excess Mileage: Mileage in excess of the allowance (generally 12,000 – 15,000 miles per year) granted under the lease. Excess mileage charges run $.08 to $.25 per mile.
Excess Wear and Tear: Damage done to the vehicle beyond the expected wear and tear from normal driving. Usually determined by the leasing company, this can be very subjective. READ THE CONTRACT TO DETERMINE THEIR DEFINITION.
Gap Insurance (Deficiency Liability Waiver): If your vehicle is stolen or destroyed, your insurance will pay for the damage or loss, but will not help you make payments still due the leasing company. Gap Insurance "fills the gap," or shortfall, between the value of your car and the amount due under your lease agreement, including a possible penalty for early termination.
Gross Capitalized Cost: The capitalized cost for the leased vehicle, plus the amount of any "negative trade equity" added to the capitalized cost.
Money Factor: Though it may appear to be an interest rate (for example: ".00385"), it is not. However, it is the number leasing companies use to calculate the interest rate you will be charged. Many leasing companies multiply the money factor by 2400 in order to determine the interest rate. Multiplying out the equation (for example, .00385 x 2400), you get approximately 9.25%. Unfortunately, not every leasing company utilizes the same conversion factor to convert the money factor to an interest rate. Ask the leasing representative what factor the company uses. They do not have to tell you. If they refuse to disclose this, you may wish to do business with someone else who will.
Monthly Lease Payment: The payment due the leasing company each month, generally comprised of depreciation, rent charge (i.e., "finance fee", or "interest"), taxes and, in some cases, acquisition fees.
Formula: Depreciation + rent charge ("interest) + taxes + (acquisition cost, if applicable) divided by the term = monthly payment.
Net Trade–in Allowance: The amount a dealer will credit you on a trade–in after subtracting the loan balance, if any, on your used car. This calculation will either give you "positive trade equity" or "negative trade equity," (i.e., being "upside down").
Negative Trade Equity: This occurs when you owe more on your loan than the dealer is willing to give in credit for your trade–in.
EXAMPLE: $ 10,000
- 7,500
________
$ 2,500
due lender prior to trade in
trade-in credit from dealer
"negative trade equity"
Were you to trade–in your used vehicle, you will not receive a discount on your leased car. The dealer will pay off the lender and add the $2,500 "negative equity" to the capitalized cost of your leased vehicle.
Positive Trade Equity: This occurs when you have paid off the loan on your used vehicle, or owe very little, and the dealer is willing to pay you more for your used car than you owe. You have "positive trade equity." This should be subtracted from the capitalized cost of your leased vehicle.
EXAMPLE: $ 7,500
- 5,000
________
$ 2,500
due lender prior to trade in
trade–in credit from dealer
due lender prior to trade–in
credit toward lease, "positive trade equity"
With this trade–in, you get a double win. Your loan is paid off and you get a discount toward your lease. BE SURE YOUR CONTRACT SHOWS THE POSITIVE TRADE EQUITY AND IS APPLIED TO REDUCE THE CAPITALIZED COST.
Though it might represent somewhat of a hassle, you should consider selling the vehicle yourself rather than trading it in on a lease. At least you will know exactly where you stand and may well get more than a dealer would be willing to give you.
Purchase Option Price: The price you will pay to purchase the vehicle at the end of the lease term, if you elect to do so. Generally tied to the residual value. Therefore, the higher the value, the more you will pay to buy the car.
Rent Charge: This is the interest, or "finance fee," charge.
Residual Value: The projected value of the vehicle at the end of the term. A major component of the formula utilized to calculate your monthly payment. Leasing companies have books with charts projecting estimated residual values, generally shown as a percentage of sticker price (or MSRP), and determined when the car is new. Just remember: the higher the residual value, the lower your monthly payments.
Security Deposit: Generally equivalent to one month´s payment. Paid at the inception of the lease. Returned if you return the vehicle in good condition at the end of the lease.
Zero Down: A "Zero Down" lease is one where you pay no fees at the inception of the lease: no security deposit, no down payment, no acquisition fees. The only expenses you may have are taxes, licensing fees and your first month's payment. Period!
