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Common Lease Terms You Need To Understand Before Leasing A Vehicle
If you are planning on leasing a vehicle then you need to understand some of the terms used in the leasing contract so that you can get the best deal on the car you are leasing. While anyone who has rented an apartment or home or piece of machinery understands the terms lessee and lessor there are certain terms used only in vehicle leasing that you need to understand in order to determine the overall cost that you will end up paying when leasing a car. You need to know these terms in order to determine if you are getting the best value out of your car lease.
The mileage allowance sometimes referred to in a car lease as yearly mileage or total cumulative mileage is the number of miles you can drive during the term of your lease. You can, in most cases, get the number of miles you can drive increased for an additional fee.
Should go over the agreed upon mileage allowance you will most likely end up paying 15 to 25 cents for every mile you drive over the limited.
The Acquisition fee is a fee that is charged by the car manufactured or the lending institution to cover the costs of them administering the terms of the lease. This fee is normally set and can’t be negotiated and will normally add around $ 400.00 to the overall lease cost.
Adjusted Capital Cost
The capital cost of the vehicle you are leasing includes the total lease payments including taxes, title and license. The adjusted capital cost is the capital cost minus any down payments, rebates, or trade allowance that is used to reduce the overall cost of vehicle.
Capital Cost Reduction
The capital cost reduction is the amount that the capital cost of the vehicle is reduced by when you pay a down payment or use other credits such as rebates or trade-ins.
The money factor can be difficult for most people to understand. The money factor is a fractional number that is used to calculate the lease fee or charge. The money factor is not an interest rate, but is based on a formula that the lessors use to determine their profit.
Lessors don’t have to reveal the money factor to you the lessee. But as a lessee you can insist on knowing what the money factor is before you sign the lease agreement.
You can use the money factor to estimate the annual percentage rate by multiplying the money factor by 2400. Keep in mind if you the car manufacturer is running a special that the money factor can drop to an extremely low fraction such as .00001.
All vehicles depreciate in value year by year. Some vehicles depreciate at faster rate than others. The residual value of the car is the car’s value at the end of the lease. The leasing company sets this value before the car is ever offered for leasing.
The higher the residual value the smaller your monthly lease payments should be.
The disposition charge is an amount set by the leasing company to clean and sell the car after the lease is completed. Make sure that the disposition charge is set in the lease agreement to prevent this fee from changing once your lease is complete.
When you understand all of these terms of your car lease, you will know how much the overall cost of your lease prior to signing the agreement.