The price that is paid for a vehicle in a lease is called the
During a lease, you pay for the use of a vehicle (the depreciation), plus the interest payment-called the money factor. When you lease a vehicle, you're actually doing business with a finance company-not the dealer. They purchase the vehicle from the dealer for the price you negotiate, then they lease it to you. For example, consider the same lease with a lease depreciation of $9,000. If the actual value of the vehicle at the end of the lease is $11,500, the actual vehicle depreciation is $7,500, which is $1,500 less than the lease depreciation you paid. Make sure that leasing a car is the right option for you. When you lease a car, you make a small down payment (typically less than 20% of the car's retail price) and then make smaller monthly payments until the term of the lease is up. When the term is up, you hand the keys — and the car — back to the dealer. When you buy with a loan, you pay the entire $20,000 cost, plus finance charges. You own the car at the end of the loan, although its value is less than the $20,000 you initially paid — $7000 less. All cars suffer the same value depreciation regardless of how they are financed — purchase or lease. You may have an option to purchase your vehicle at lease-end, for a specific guaranteed price, if you choose. You may also use the car as a trade-in on another new car purchase or lease. Otherwise, you can simply return the vehicle to the leasing company and walk away. If the actual value of the vehicle at lease-end is $8,500, the actual vehicle depreciation over the lease term is $10,500, which is $1,500 more than the lease depreciation you paid. In contrast, consider the case in which the vehicle is worth more than the residual value. A leasing term that is sometimes called a disposition fee, a termination fee is what a person leasing a vehicle pays at the end of the lease for the privilege of leasing a vehicle. Nearly all leases contain either a termination fee or an acquisition fee, which is paid at the beginning of the lease. Sales Tax: A portion of every monthly lease payment is paid for sales tax. However, you pay tax only on the amount of the car's value you are using. In other words, rather than paying 8 percent sales tax on a $20,000 car, you pay 8 percent of the $8,000 the car declines in value as you drive it. The dealer handles all the paperwork for the lease and you usually don't talk to anyone at the leasing company at all. The leasing company can be a bank, the car dealer, or the manufacturer. The selling price is often called Capitalized Value, or Gross Cap Cost. Term: The length of a lease or loan. Termination Fee: Can refer to either prepayment penalties or a disposition fee. Trade-In Value: The price a dealer will pay for your current car when selling you a new one.
Disposition fee