Anyone who has ever rented an automobile will tell you that car dealers oftentimes seem to speak another language. It’s hard to negotiate a good deal when you simply don’t understand the expressions.
The following glossary will help you to break the language barrier, and speak with leasing agents on their own jargons:
Acquisition Fee
This cost is charged by the leasing company to start the leasing process. Not all leasing companies will charge an acquisition fee, but those that do will demand for no less than $300. Acquisition fees are rarely negotiable.
Capitalized Cost
The capitalized cost is the entire selling price of the vehicle. This amount includes all taxes, title, acquisition fee, licensing fees, and any optional warranty items or insurance that you elect to have included in your lease. These supplementary fees may be paid up front, or rolled in to the capital cost to be paid over the term of the lease.
Depreciation Fee
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Portion of your monthly lease payment charge is the depreciation fee. This amount is used to estimate the value of the vehicle at the end of the lease. To calculate the depreciation fee, assess the vehicle’s list price minus the expected residual value, and divide that amount by the number of months in the leasing term. For instance, let’s say you’d like to lease a car with a retail price of $23,500. The leasing company calculates that at the end of the three-year lease, the vehicle will be worth 35% of the original retail value, or $8,225. The variance of $15,275 is divided by the number of months in the lease, 36 months to give you a depreciation fee of $424.
Termination Fee or Disposition
If you decide against buying the vehicle when your lease ends, the leasing company will charge you a termination or disposition fee.
GAP Insurance
This optional insurance plan will pay the balance owing on your lease in the event of damage or theft of the vehicle.
Inception Fees
Fees that are payable at the beginning of the lease are called as inception fees. These typically include the acquisition fee as well as taxes, title fees, security deposit, and your initial monthly payment.
Allowance for Mileage
Your lease contract will allow you a maximum number of miles that you can drive your vehicle yearly. If you exceed the specified number of miles, you will incur an extra mileage penalty. Typical mileage allowances range from 12,000 to 15,000 miles a year, although this is normally negotiable with your leasing company.
Charge for Mileage
This is the penalty that must be settled when you exceed your mileage allowance. Typical leasing agreements will include a mileage charge of 10 to 20 cents per extra mile.
Money Factor
A money factor is a fractional number used to estimate your monthly lease payment. By multiplying the money factor by 2.4, you will be able to get a rough estimate of the yearly percentage rate on your lease. If your dealer quotes a money factor of 3.4, you can multiply this figure by 2.4 to get an equivalent yearly percentage rate of 8.16 percent.
Residual Value
Your leasing company will quote a residual value, which is the estimated amount of money the vehicle will be worth when your lease expires. A higher residual value leads to lower monthly payments, but will also result in a higher lease-end buyout cost if you decide to maintain the vehicle.
Security Deposit
This is an up-front amount that your leasing company will require at the start of your leasing term. The security deposit protects against non-payment, and is normally refunded at the end of the lease.
Charges on Wear and Tear
These excess fees may be payable at the end of your leasing agreement. The charges are based on any vehicle wear or use over and above what the leasing company believes to be above average. Significant engine and tire wear and body or paint damage may incur extra charges.
Leasing a vehicle doesn’t have to be a frightening experience. When you can walk the walk and talk the talk, you’re able to bargain and drive away with a better deal.
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Tagged with: leasing • used cars
Filed under: Buy A Car