The Essential Terms Of Any Auto Lease

December 7, 2009

Leasing a car is a lot different than buying one. Leasing has been applauded by some and disparaged by others but is an option that comes with several benefits. You can obtain a car for lower monthly payments in many cases and move on to a new car when the term of the lease is up.

While you will not have a car to show for all your payments, this option is the perfect fit for many car shoppers. Before you commit yourself to any lease, however, you need to known and understand the essential terms of any auto lease.

The Capital Cost

The capital cost is just the amount that the lender that you go with pays to the auto dealer for the car you choose. This price will be the end result of your own negotiation with the car dealer. It will help determine how much you pay for the lease. Your savvy negotiating skills will come into play with the capital cost. This is one of your big chances to get the best deal.

The Capital Reduction

The capital reduction is no more than the amount that the price of the car, the capital cost in this instance, is reduced either by your down payment or by the value of any trade-ins. While the leasing option is often attractive because a substantial down payment is unnecessary, any contributions to the capital reduction will help to decrease the cost. A down payment or a trade-in can be used to lower your monthly payments.

The Residual Value

The residual value of the car is how much the car is worth at the end of the lease period. This amount is often put in terms of a percentage of the original value of the car. In theory, the payments that you put toward the lease will be making up for the value that the car loses during the lease period. This value will help to decide your payments because car dealers need for the difference between the original value and the residual value to be covered by your payments. This may not be all you pay for but it is a determining factor of your payments.

The Term Of Your Lease

The term of your lease is nothing more than the number of months over which you will be leasing the car and making lease payments. You may be able to obtain lower payments with a longer lease term but the difference is unlikely to be substantial. If you lease a car for a period that exceeds the manufacturer’s warranty then you might find yourself paying for repairs that could make your lease a more costly endeavor.

Annual Percentage Rate (APR)

The annual percentage rate is a combination of the cost of interest and any fees or other added on service charges. This total amount is given as a percent value of the total loan. This is one figure that many smart shoppers turn to in order to find the best deal.

These are the essential terms of any auto lease. You will want to understand the terms and conditions of any auto lease before you decide to go with it. Your understanding is imperative because the lease will determine how much you pay and how long you will be paying it for.