Car Leasing Contract Terms to Watch For

Here are the some terms to watch for in a typical car leasing contract.

• Term: This is the length of the lease. The term can be short (12-24 months) or long (up to 60 months).
• Miles: This is how many miles you are allowed to drive the car, truck or SUV in your lease.
• Price of the car: This is what you pay for the car.
• Lease acquisition fee or bank fee: This is the fee that the bank charges to do your lease.
• Total out of pocket: This is the amount in check or cash that you pay to the dealership upon purchase.
• Capitalized cost reduction: Money that you pay upfront that exceeds the cost of fees and acts like a down payment. It reduces the "starting point" or total capitalized cost.
• Total Capitalized cost: This is the cost that you will be paying interest on. Take the price of the car plus all fees minus total out of pocket.
• Residual: The residual is the amount the bank has set as the value of the vehicle at the end of the term. The bank determines this figure for each car based on the term and number of miles driven.
• Depreciation: This is the loss of value that you are paying to use the car. Cap cost minus residual equals depreciation. This should be the major portion of your lease payment.
• Rent: Since the bank does not lend money for free, you also pay rent or interest. Think of interest on a lease as payment for "tying up"the bank's money rather than actually borrowing it.
• Money Factor: Money factor is a super word. Money factor = interest rate / 2,400. Simple as that. If your lease has a money factor of .002 this equals 4.8% interest. If your money factor is .003 this equals 7.2% interest.
• Assumption: Assumption means the taking over of the lease by another party.
• Total rent: This is a valuable piece of information in your lease contract to determine how much interest you are paying, especially if the dealer will not tell you the money factor, or you do not believe them. Divide this figure (total rent) by the number of payments. Now you can see how much interest is in each payment.
• Lease payment: Your payment equals the monthly rent plus monthly depreciation. Each payment pays some depreciation and some rent.
• Security Deposit: Some leases require this and some do not. When negotiating a lease, ask if you can get a better money factor by paying a security deposit. The bank, not the dealer, sets this..
• Turn-in fee: Many leases charge at the end to turn in your car. This does not affect your monthly payment

Understanding this will help you save thousands on your car lease!