UNDERSTANDING CAR LEASING TERMS – Part 2

Leasing is a smart way of investing your money in 2021 and we will help you know car leasing terms to get the best deal. You use your finances wisely as the monthly payments tend to be quite low and affordable even for the luxurious car fleets.

At the end of the contract, the leasing company expects you to return the car, or if you have other preferences you should discuss all the details with your assistant.

It seems to be as easy as A B C but in Part 1 we mentioned some lease vocabulary that may confuse you at first.

We covered notions like Depreciation, MSRP, Residual Value, Money Factor, and Drive-Off Cost. Now let’s have a look at some terms that we have to examine. Don’t feel like reading? Contact our lease expert to get a free consultation.

1. Capitalized Cost

The selling price of the vehicle you are going to pay for is named Capitalized Cost or “Cap Cost” for short. It is the value of the vehicle at the beginning of the lease in addition to any extra fees, taxes, and other possible charges. This amount out of other car leasing terms is negotiable and it affects your monthly payments.

2. Cap Cost Reduction

All the factors that lower your Capitalized Cost are named Cap Cost Reduction. The company provides you with an understanding of the total amount you must pay in the future. It includes the estimation of both with and without the capitalized cost reduction. This way if you want to reduce the amount of the monthly payments, you will need to make some Cap Reduction payments upfront. This includes the down payment, trade-in allowance, rebates, and other things you agree with the company.

3. Security Deposit

A kind of payment that protects the leasing company if you go over the allowable mileage, damage the vehicle, or default on the contract is called a Security Deposit. Usually, it is a fully refundable charge that can be equivalent to a single month’s lease payment. You can use your security deposits as a part of your Cap Cost Reduction. It may lower your overall money factor, monthly payment, and increase your savings.

4. Acquisition Fee

An acquisition fee is an amount that a leasing company charges to cover the administrative costs of setting up a new auto lease. It may also be called the assignment fee, administrative fee or origination fee.  This payment generally covers the cost of initiating the lease and running a credit check on a customer. You may agree to pay it as a part of your down payment or roll it into your monthly payments. Typical acquisition fees range from a few hundred dollars to around $1,000.

5. Gap Insurance

Guaranteed Auto Insurance or short GAP Insurance is a type of coverage that works for your protection. It covers the “gap” between the amount owed on a vehicle and its actual cash value in the event it is totaled, destroyed, or stolen from a covered claim. It is optional and your lease expert will advise if it’s necessary for your car.

6. Mileage limit

When you agree to the deal, one of your car leasing terms will include a fixed number of miles per year. It usually varies from 10 000 to 15 000 miles a year. This amount may be negotiated and you may have to pay an excess mileage charge. A fee is typically from 10 to 25 cents per mile, and the details are specified in the agreement.

7. Excess Wear & Tear

Most lease contracts allow you to incur “normal wear and tear” without having to pay an additional charge. But sometimes when you turn your vehicle in the company finds the damage beyond what is considered normal.  Thus you may be held liable for paying the amount necessary to repair the parts. Typically the Excess Wear & Tear will include dents, scratches, stains to the upholstery, worn tires, cracked glass, or if you didn’t follow the vehicle’s maintenance schedule. But the details should be discussed with your personal lease expert beforehand. 

Monthly Payment Calculation

Now when we learned some basic terms of leasing we may have an example of monthly lease payment calculations. Or you may get the Free Quote from your personal lease expert.

There are three components that we need to estimate: Monthly Depreciation Fee, Monthly Finance Charge, and Sales Tax. To get the amount of  the Monthly Depreciation Fee we use some of our car leasing terms and do the following:

(Capitalized Cost – Residual Value) / Lease Term

Let’s take a Term of 36 months with a Cap Cost of $35 000. The estimated residual after 36 months is going to be 54% or $18 900.

Monthly Depreciation Fee = ( $35,000 – $18,900 ) ÷ 36 = $447.22

The Monthly Finance Charge is calculated this way:

(Capitalized Cost + Residual Value) x Money Factor

We’ll have a Money Factor of 0.00333 (equivalent to 8% APR) for the example

Monthly Finance Charge = ( $35,000 + $18,900 ) x .00333 = $179.49

And the Sales Tax is done as following:

(Depreciation Fee + Finance Charge) x Tax Rate

The New York Tax is 4% so we take it for our calculation:

Sales Tax = ($447.22 + $179.49) x 0.04 = $25.06

Your total monthly payment would be: $447.22 + $179.49 + $25.06 = $651.77

This kind of calculation shows a very approximate result as we didn’t mention any down payments that affect your Cap Cost Reduction or possible additional fees that also may change your monthly payment cost. You may also try to calculate your future lease with the help of our Lease Calculator. Another way you can address your personal lease expert who will do the estimation for you and offer the best deal to suit you.

How to get the best lease deal in NY?

Grand Prix Motors offers you the full-service lease experience.

We offer the easiest and fastest way to sell your car so you may trade in with us.

We take all the hassle on us so you may enjoy driving your new car when you choose to lease with us.

Also, you may get the Tire & Wheel protection covering the repair or replacement of tires and wheels damaged by everyday road hazards.

At last, we provide you with needed auto services as we work with all insurance companies and we encourage our customers to consult us on their collision repair needs.

We will give you all the necessary information details to deliver the best service and take care of your lease deal. To contact your personal lease expert click here.

#enjoy your freedom with Grand Prix Motors!

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