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Learn2 Lease a Car (continued)
Step 1: Know the language

Like any new territory, the land of the lease has a distinctive lingo. Understand buzz phrases such as the following:

  • MSRP: The Manufacturer's Suggested Retail Price, set by the car company. This price must be posted in a new car's window, but there can be additional charges that vary from dealer to dealer.
  • Total capitalized cost: the base price of the car, sometimes called "Invoice Price." You'll want to negotiate from this buying price.
  • Capitalized cost reduction: the deposit on the lease which reduces the monthly lease payment.
  • No money down: usually this term is a red flag, one of those vague (possibly sneaky) descriptions. Often, they'll say there is no "money down." In reality, you must come up with a few payments to qualify for the lease.
  • Depreciation: the decrease in value of the car during the lease term. This is usually assessed on a monthly basis.
  • Residual value: this is very important to be clear on. It's the car's predicted value at the end of the lease term. It's about .65 for two years, .57 for three years and .41 for five years.
  • Early termination charge: the fee for ending the lease earlier the date specified on the lease. Note: if the lease ends because you wreck the car in an accident, you may be charged with this fee.
  • Liability after casualty loss coverage: an agreement with the leasing company, also known as gap coverage. In case of fire or theft, this covers any remaining costs between the value of the car and what the insurance company actually pays.
  • Money factor: the leasing company's interest rate to calculate finance costs. Multiply by 2400 (that figure is common to all leasing companies) to get the annual percentage rate. For instance, the interest rate on a .0035 money factor (x2400) will be 8.4%.

Deposits: this is money you pay to offset possible return fees. Unlike the capitalized cost reduction payment, the deposit does not bring down any of your capitalized costs.

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Step 1: Know the language
Step 2: Assess the costs
Step 3: Contract according to your needs
Step 4: Understand end-of-lease charges


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