Statista, a massive online statistics aggregator, reports that the percentage of new cars that were leased in the first three months of 2018 was 29.83, or nearly a third of all automobiles. What that statistic represents, really, is the increasing trend among consumers and dealerships to forego traditional financing and go the lease route.
The only hitch is that people leasing for the first time will have to learn a whole new language to understand what they are agreeing to when signing a lease. That’s why this article exists – this post will look at the reasons for leasing, the costs, and a rundown of common terms you should be familiar with.
Leasing is preferable to buying because you can lease a better car than you can afford to buy – you can get a great price on your car lease even if it’s a high-end luxury car. The reason is that leasing requires a lower (or no) down payment, and smaller monthly payments. Edmunds, the auto reviewer, also points to lower maintenance cost as another reason to lease. Leased vehicles are warrantied and leases end about the time that expensive repair bills begin.
Depending on the life of the lease you can have a new car every three years or so. If you don’t incur any excessive mileage or damage charges you can basically step out of the current vehicle into a new one.
Calculating the Actual Cost of a Lease
When leasing, a lot of consumers only look at the sticker price or the monthly payments. To calculate if a lease is affordable there are other things to consider so here is what you need to know. When figuring the actual cost of leasing, factor in dealer and manufacturer incentives, and don’t forget the interest and down payment (provided that there is one).
A Glossary of Leasing Terms
Acquisition/Bank Fee: Compensation paid to a bank or other lender in exchange for underwriting the lease.
Allotted miles: The maximum number of mileage you can put on the car during the term of the lease.
Cap Cost Reduction: Essentially a down payment this is any money given at the lease signing to reduce the monthly payments.
Capitalized (Cap) Cost: The final negotiated cost of the vehicle being leased.
Disposition Fee: A pre-determined non-negotiable fee paid to the leasing company if you opt not to buy the vehicle at the end of the lease period.
Lessee: The consumer who in exchange for the use of the car agrees to make monthly payments and adhere to terms and conditions like limits on mileage.
Lessor: The lessor is not the dealership but a third party leasing company that has purchased the vehicle being leased from the dealership.
Money Factor: This is basically interest like on a loan.
Over-mileage charge: A charge for exceeding the agreed upon mileage.
Residual Value: The depreciated worth of the vehicle when the lease period comes to a close.
The above terminology is part of what you need to know to make an informed leasing decision. To determine your monthly leasing cost, include the cap cost reduction and money factor. Leasing is popular these days for good reason: you can drive a better vehicle and save on upkeep expenses. Just remember to stay informed before you make the big decision!