The purpose of the AutoBrag Introduction to Car Leasing Guide is to demystify car leasing and help you save money. Car leasing on the surface appears to be very simple with its advertised "low monthly payment" slogans but in reality it is a complicated financial reaction. When it comes to car leasing, knowledge is power and the more informed you are as a car shopper the happier your wallet will be.
- MSRP short for The Manufacturer's Suggested Retail Price
This is just the very long way of saying the sticker price on the new car. Car shoppers who use AutoBrag know that they should NEVER pay sticker price and to run not walk away from dealerships that try to mark up cars over the sticker price.
- Selling Price properly termed the Capitalized Cost
The capitalized cost is a fancy way of saying the selling price of the car that you have negotiated. Many dealerships will imply that you cannot negotiate the price of the car when it’s a lease but this is absolutely not true. It is in your interest to get the price as low as possible for a new car regardless if whether you intend to buy the car, finance the car, or lease the car.
- Capitalized Cost Reduction
This is the term used to define a lowering of the selling price due to rebates, incentives, trade in value, and or cash down payment.
If you look at the tiny disclaimers shown on television commercials featuring new car leasing specials there is always the capitalized cost reduction section. Why is this significant? Imagine if a dealership announced that any car can be leased fee $199 per month. Would you believe it? The answer should be YES because technically if the capitalized cost reduction is large enough the monthly payments can be minimal.
We’ve seen many car shoppers fall for those commercials. Then there are those giant banners dealership hang outside announcing lease specials on a car that seems like a deal too good to be true. Guess what? It is too good to be true when you go in and find out you need to be $5,000 down for the capitalized cost reduction. Remember that you MUST get all the information before you walk in because it hard to be disciplined when you smell that leather and hear the engine roar on your new car.
- Residual Value
When it comes to leases you will essentially be paying to "use" the car for an amount of time. The residual value is how much your new vehicle is worth at the end of your lease whether it is 24, 36, 48, or any number of months.
When you lease a vehicle the residual value has already been determined by the manufacturer so make sure you find out what that number is. The best way to think of the residual value is to use a percentage number.
For instance if you are looking to lease a new 2009 Honda Accord the 36 month residual value may be stated as 58% of the original sticker price aka MSRP.
- Money Factor which is a confusing way of saying interest.
When you lease a vehicle the leasing company is putting their money to work so you can lease the vehicle. They charge you interest for using their services. We hope you didn’t think leases did not include interest? Unfortunately for consumers, unlike financing a vehicle where the interest is just given to you the interest rate on a lease is not expressed directly.
Dealerships use the term Money Factor to express your interest rate or the lease. The best part is that the money factor is a long decimal that confuses people. If someone told you the money factor on your lease was .005 or expressed as 5 what would you think the interest rate was? Logically 5% comes to mind but this is not the case. You need to multiply .005 by 2400 which would give you an interest rate of 12%.
Why don't leases get rid of the money factor and just use regular interest rate expressions? In one word…profit. The less knowledge that consumers have the more likely they are to overpay. It would make sense if the government forced auto leases to be expressed in a simple interest rate form.
