Leasing Explained

What is a lease? - Leasing a car is like renting it for a long period of time, typically three years. Instead of buying the car outright you will not own the vehicle at the end of the term. You get to use the car during the lease, but you don't own it. Leases come with mileage limits, and you're responsible for any damages beyond normal wear and tear. At the end of the lease, you can either return the car, buy it at a predetermined price, or return it to the dealer. It's like renting a car for an extended period of time with certain conditions and costs attached.

Leasing VS Finance - Whether you lease or finance a car you will be responsible for making monthly payments, but leasing often results in slightly lower payments. This is because lease payments are based off the estimated depreciation of the car's value over the lease term, whereas when financing a vehicle you are paying the entire selling price of the course of the loan.

Leasing Terminology:

Money Factor/Rent Charge - Similar to an interest rate, it's a multiplier used to calculate the interest on the lease.

Residual Value - The estimated value of the vehicle at the end of the lease term.

Lease End Purchase Price - The price at which you can buy the vehicle at the end of the lease.

Acquisition Fee/Bank Fee - A fee collected by the leasing company for writing and maintaining the lease.

Disposition Fee - A fee charged when returning the vehicle at the end of the lease.

Gap Insurance - Protects against financial loss in case of a total loss (e.g., due to an accident).

Mileage Fees - Charges for exceeding the agreed-upon mileage limit, which can be paid upfront or at the end of the lease.

Example -

The selling price of a new vehicle is $34,001.00 as seen above. Automotive manufactures will make predictions on what the vehicle will be worth after specific lease terms. This is referred to as residual values (See Below).

1- Term of the Lease. Most leases will be a standard 36 months (3 years)

2- Miles per year. A standard lease is 12k miles a year adding up to 36k miles at the end of the 3 year lease term.

Leases are structured around the customer paying the difference between the Selling Price and the predicted residual value.

Toyota is predicting that after 36 months and 36k miles on the vehicle. The vehicle will be worth $20,401.00.

This will result in the customer paying $13,600 over the course of the 3 year lease before interest (Money Factor).

Benefits of Leasing:

Lower Payments - Lease payments are typically lower than finance payments, making it an attractive option to customers looking to manage monthly expenses.

Access to Latest Models - Leasing allows you to drive the latest models with cutting-edge features.

Factory Warranty - The vehicle is typically under factory warranty for the majority of the lease term, offering coverage for repairs.

Flexibility - Leasing provides the flexibility to change or upgrade your vehicle more frequently.

Lower Maintenance Costs - Leasing often results in lower maintenance and repair costs compared to ownership.

No Trade-in Hassles - You don't need to worry about trade-in values, market changes, or selling the car at the end of the lease.

Purchase Option - At the end of the lease, you have the option to buy the vehicle at a predetermined price

3-Year Trial - Leasing allows you three years to decide if you want to keep the car or try a different model.