If you plan on leasing a vehicle, you should understand what factors can play a role in how much you will pay each month on your lease. While every dealer charges their own rate for a lease, more car lease contracts contain the same fees and charges. By taking time to understand details on each of the charges, you will be able to understand why car leasing prices can vary from dealer to dealer. Here is a breakdown of what you will pay for when you are signing a lease:
What Are You Paying For?
The first step to drawing up a lease contract is settling on a final negotiated price. This price is the MSRP of the vehicle you are leasing, minus any discounts and down payments you have negotiated with the lender. The lessor will take the negotiated price into mind after reviewing the vehicle’s residual value when calculating your monthly payments. If the model you choose has a high residual value, this means that the vehicle retains value. This will reduce your monthly payments, and may also reduce the depreciation fees you pay throughout the life of a contract. Here is a brief breakdown of each of the items you might see listed on the contract:
- Capitalized Price: The MSRP of the vehicle minus discounts negotiated
- Lease Price: The negotiated price minus any down payments you have made
- Lease Factor: The interest rate on a lease
- Residual Value: The value of the vehicle that will be retained at the end of the lease term predicted by the lessor
- Depreciation Fee: The fee you will pay based on how much the vehicle depreciates
- Lease Fee: Fee charged by the lessor for the lease contract
- Usage Tax: The tax charged on the amount the vehicle depreciates
Once all of these figures and fees are added together, you will come to your monthly payment. This is the amount you will pay every month for 12, 24, or 36 months. At the end of this period, you will have the option to buy out the lease or return your vehicle. Keep in mind that car leasing prices can add up if you go over the allotted mileage. You should also consider the cost of carrying the high limits of auto insurance the lessor requires. Once you add all of these costs together, you can find out the true cost of leasing a car based on the terms stated in the contract.