What is an Auto Lease?
An auto lease is a financial agreement that lets an individual gets an access to the vehicle for use without paying the total amount. They can use the vehicle for a certain period of time, usually for two or five years and they should return the vehicle at the end of the term period. Getting an auto lease is similar to renting a house. In the auto lease, they don’t own the vehicle but they can use the vehicle for the certain period of time.
Auto lease terms and conditions:
- Lease: Lease is a legal agreement between the customer and the leasing company.
- Lease Company: The Company that purchases the vehicle from the dealer and give the vehicle as lease to others.
- Lease term: The time period for which the vehicle is leased.
- MSRP: It is known as Manufacture’s suggested retail price. The market price of the vehicle.
- Invoice price: The amount paid on the specific vehicle by the dealer that includes all discounts and the cost will be significantly low.
- Advertising association fees: The fee paid by the dealers for advertising the vehicles in the particular region. This fee is included in the vehicle invoice.
- Capitalized cost: It
is known as cap cost and it is divided into two costs. They are gross cap cost
and adjusted cap cost.
- Gross cap cost: The cost includes the price of the vehicle, any fees, insurance premiums, extended service plans and other add-ons.
- Adjusted cap cost: It is the cost from gross cap cost by deducting other costs like trade-in, downpayment etc. It is the amount financed over the lease term.
- Capitalized cost reduction: It includes the trade-in value, the downpayment made, and rebate. This cost is reduced from the cap cost is known as capitalized cost reduction.
- Residual value and end of lease purchase price: The value of the vehicle at the end of the lease. And the leasing company estimates the residual value. The lease contract gives the rights to purchase the vehicle at the end of the lease term for the residual value.
- Option discounts adjustments: The manufacturing company sometimes offers a special discount on bulk purchases. The leasing company treats this discount especially while calculating vehicles residual values.
- Money factors: It is an amount used to calculate the lease payment. It approximates the annual percentages rate of the lease when multiplied with 2400.
- Annual percentage rate: The APR is used in calculating lease payments and it can be converted to money factor by dividing with 2400.
- Assignment fee: It is the processing fee charged by the leasing company.
- Mileage: The allowable miles that the lease allows to drive without any additional charges.
- Disposition fee: If the person doesn’t want to purchase the vehicle at the end of the lease term then the leasing company charges an administrative fee. It also is known as disposition fee.
- Early termination penalty: The penalty that has to be paid if the person ends the lease before the contracted period.
- Insurance: The amount paid on the vehicle to protect the vehicle if any accidents happen. Usually, the coverage requirement is more on the leased vehicle than the owned vehicle.
- Gap insurance: It is a protection for the vehicle if the vehicle is stolen or meet with the accident. In the company’s point of view, it is a loss of the vehicle in the form of early termination.
- Sales, personal property & other taxes: The sales tax and other applicable taxes are handled in the lease agreement based on the state and central government. It may vary based on the governments.
- Security deposit: It is one month’s lease payment taken, as a security and it will be returned at the end of the lease term.
- First month’s payment: The payment has to be made at the beginning of the month. The first-month payment has to be made as an upfront amount to the dealer at the start of the lease.
- Excess wear and tear: In the lease agreement there are stringent requirements regarding the condition of the vehicle when it is returned.
- Options to purchase: The leasing company typically offers an option to purchase the leased vehicle at the end of the lease term. If the option is available the person can buy the vehicle at the predetermined price or market value.
The components included in the auto lease calculator:
- Auto price: The price of the vehicle.
- Lease term: Te time period of which the vehicle is leased.
- Money factor/ interest rate: The money used to calculate the lease payment or the rate of interest that has to be paid.
- Down payment: The amount paid while purchasing or leasing the vehicle.
- Trade-in value: The trade-in value of the vehicle.
- Sales tax: The taxes paid on the vehicle at the start of the lease term.
- Residual value: The sale value of the vehicle at the end of the lease term.
Using this particular calculator you can estimate the leasing amount that has to be paid and you can compare the amount with the purchasing cost of the vehicle.