Auto Leasing

Category Archives: Auto Leasing

Dealer Leasing Tricks

Too often when it comes to auto-leasing, people get so dazzled by the myriad terms and the jargon thrown their way that they end-up paying through the nose, relying on a dealer’s “help” than their own informed decision.

Here is a look at some of the tricks dealers use to pad their profits and leave the customers shelling hundreds of dollars more than the deal should be worth.

Trick 1: Leasing always a better deal than buying

Dealers use the lure of lower-monthly payments to entice customers to sign for long-term loans, with terms stretching for five years or more, making the payments even lower. There are two catches with such lengthy contracts: higher mileage, exceeding the prescribed limit, and hefty repair costs. With leases charging on average 10 to 20 cents a mile for any extra mile over the agreed amount in the contract, and warranties only covering three years, you leave yourself wide open for hefty charges for excessive mileage and wear and tear.

Lease Financing

For auto-consumers, crunching the numbers is one of the most difficult and confusing aspects of leasing. Take the finance charge on a lease for instance. Most people just don’t understand how this is calculated on capitalised cost AND residual value instead of just the capitalised cost. For most, it seems plainly obvious, just as is the case when purchasing, that a charge should be levied on the capitalised cost of the vehicle.

Well, no quite! When you lease a car, you’re only using the car over a specified period of time with the option of buying the car. The residual value represents the “loan balance” at the end of the lease. If you add it to the capitalized cost and divide by two, you’ll get the average capitalized cost outstanding over the lease term. Let us suppose you’re leasing a car with a capitalized cost of $25,000 and a residual value of $15,000. You average balance over the lease term, irrespective of how long it is, is $20,000 – the sum of the two divided by two -. Using this sum works because the money factor is the annual interest rate devided by 24, rather than 12. Continuing with our example and assuming an interest rate of 6% APR: $30,000 X (6 per cent / 24) = $75 (Capitalized cost + residual value) X (interest rate / 24) = Monthly finance charge This finance charge is added to the depreciation charge to calculate the monthly payments on your lease.

Leasing Glossary

In order to get a good leasing deal, you need to understand leasing jargon.

Read through this leasing glossary to get an overview of the basics:

Acquisition fee: A fee charged by a leasing company to begin a lease. Not all leasing companies charge an acquisition fee but if charge it starts at about $300 and is seldom negotiable.

Capitalised cost: The total selling price of the leased vehicle This also accounts for taxes, title, license fees, acquisition fee and any optional insurance and warranty items you elect to fold into the lease and pay overtime rather than upfront.