Before you head to a dealership, choose a car, and sign a contract, ensure you know the terms associated with leasing a vehicle.

Money Factor

The money factor is a financing charges and is similar to the interest rate.

If you multiply the money factor by 2,400, you can calculate your annual percentage rate (APR). An example of a money factor is 0.00156.

Capitalized Cost 

Capitalized Cost means the same thing as the price of the car.

Depreciation

This simply means the vehicle you lease will lose value after you drive it off the lot, especially if it’s a new, never-used vehicle. You can lower depreciation by leading a used or pre-owned vehicle.

You don’t have to get the oldest make and model to afford the monthly payments for leased vehicles, For instance, you can lease Mercedes G63 Squared.

Residual Value

The residual value of a vehicle is how much the car will be worth after the end of the lease term.

Down Payment

Like buying a vehicle or a home, you must make a down payment. The amount of the down payment depends on the overall value of the car. A good rule of thumb is that the down payment will be 20% of the overall value of the car. For example, if a car’s value is $30,000, make a down payment of $6,000.

Leasing Fees

The fees associated with leasing a vehicle that you can expect to pay before signing are:

  • Acquisition fee – Often added to the capitalization cost, the acquisition fee or the bank fee is charged by the dealership or lessor to set up the lease. It is also a one-time fee charged by the dealership to cover the time, labor, and cost of setting up the lease.
  • Assignment fee – An assignment fee takes care of processing and is also known as the acquisition fee.
  • Disposition fee – This fee is paid to cover the cost to prepare your leased vehicle for the next lessee.
  • Documentation fee – This fee is charged by a dealership to process paperwork.

Security Deposit

Similar to renting an apartment, leasing a vehicle requires you to pay a security deposit equivalent to the amount of your monthly payments. 

Allowable Miles

Allowable miles are the miles you’re allowed to drive when you’re leasing the vehicle.

Lease Terms

This simply means how long your lease is. For example, 36 months or 3 years. This is how long you get to use the leased vehicle, unless you plan on owning it, and how long you will be making monthly payments on it.