The first portion of the lease payment terms that you need to look at is the net capitalized cost.
From an accounting point of view, this is the difference between the selling price and any factory rebates and down payment. The selling price can also be the value if the dealer agrees to pay off the balance of the loan car. Your net capitalized a cost, therefore, is down payment and other credits plus negotiated to sell price plus loan balance.
The residual value is another important component of the lease calculation. It is calculated as the sticker price multiplied by the residual percentage. This number is often provided by the dealer when you are negotiating the lease terms.
The depreciation fee is calculated by dividing the difference between the net capitalized cost and residual value by the number of payments. In the first years, the depreciation cost is higher and then reduces gradually. After the end of the lease term, most cars will have lost over 60 percent of their value.
The financing cost
This is important because it shows you how much it will cost to own the car. There are two ways to do this – APR or rent charge. In the rent charge, the money factor is got by dividing the rent charge and a calculation that involves the sum of the net capitalized cost and residual value multiplied by months of the lease.
In the APR calculation, the dealer will provide the interest rate APR which you subsequently divide by 2,400. To get the final monthly lease payments you will need to total net capitalized cost and residual value and multiply this by the APR. The result will be the monthly payments that you make for the lease.
In the US the lease payments attract a sales tax. This is the simplest to calculate as it involves multiplying the sales tax by the lease payment monthly amount. You will need to find out with your state whether this tax is levied on lease payments.
Your lease payment is now a sum of the financing fee, depreciation fee and the sales tax (if applicable).
Getting the most for your lease payments
Once you learn how to calculate lease payments you need to shop around for the best deal. Before deciding to get a car lease to calculate your monthly expenses and check whether your lease payments will affect utility bills in any way. Put aside some money for emergencies.
Many car dealers will make every effort to move your mind from the purchase price and to the lease payments. But, the purchase price is very important and you should negotiate for it to go down. The value of the car will depend on the purchase price and residual value. If you like the car you can choose to purchase it.
The residual value is defined as the value of the car once the lease term is over. Dealers often try to accurately determine this value as it is what they get when they sell the car. A car with a higher residual value is good. When calculating residual value shop around for cars from other dealers. This will give you a rough estimate of the amount.
Lease terms are often spread over 36 or 60 months. The longer the lease repayment months the less you pay. Depreciation rates are high during the first years of the lease and then slow down in coming months. You will have to weigh how the monthly lease amounts will affect your monthly income before settling on either 36 months or 60 months.
The car’s mileage will affect lease payments. If a car does more mileage it means that there are more depreciation and subsequent tear. This will increase the monthly lease payments. Some dealers charge extra when you go above the stipulated mileage.
When negotiating the lease it is vital that you look at the fine print. There are often hidden costs tucked in the lease by the dealer. If you are doing this for the first time you can go with a friend who understands leases or your lawyer.
Leasing a car is a good option if you want to test drive a car before making the decision to purchase it. However, lease calculations are subject to many assumptions. You need to go through each calculation and ascertain the dealer’s methods for creating the numbers.
Depreciation rates tend to be higher during the first years and reduce the year after. You need to also ascertain your monthly expenses and decide whether to go with a 36 month or 60-month lease. Some states have a sales tax that is calculated from the lease monthly payments.
It is paramount to know how to calculate your lease terms to avoid being conned. Use these calculations to shop around for an affordable lease.