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Understanding Vehicle Lease Agreements
When you finally agree to the terms of your best lease deal with the dealer, you will be presented with a long lease contract. The following will help you understand some details of your lease agreement.
Above is a sample of a car lease agreement. The look of the lease contract that you will sign might vary, but you will see that the terminology will be consistent with this sample. Lets dive in!
1 and 2. Amount Due at Lease Signing and Lease Monthly Payment
These two boxes are pretty self explanatory. The lease monthly payment box reflects your monthly payment due date, however, many lenders can offer to change your payment due date if you are trying to organize the timing of your bills. Simply reach out to the lender and ask.
3. Other Charges (not part of your monthly lease payment)
This box reflects any amounts that you will have paid or you will owe additionally at the beginning, during, or at the end of your lease term. The lease disposition fee is typically the most common charge that will be reflected in this box. The disposition fee is a lease turn in fee paid to the lender. This amount varies with each lender but generally is anywhere from $300 to $600. This is not a fee that is paid to a dealer.
4. Total of Lease Payments
This is simply the total amount of money that you will have paid on your lease deal.
5. Itemization of Amount Due at Lease Signing
5a. Amount Due At Lease Signing
Capitalized Cost Reduction : This amount is the additional down payment above and beyond the minimum lease inception dues which go towards lowering your lease payment. First Monthly Lease Payment : As a part of your lease inception dues, you will have to pay your first lease payment. This payment will go towards your total lease payment obligation, so if you are signing a 36 month lease, you will have 35 remaining lease payments. Refundable Security Deposit : If the lender requires a lease security deposit, it will be a part of your inception dues. Some lenders do not require a security deposit. This amount will be applied to any additional charges due or refunded at the end of your lease. Title Fees : This is a government fee and will vary with every jurisdiction. Registration Fees : This is also a government fee and will vary with every jurisdiction.
5b. How the Amount Due at Lease Signing will be paid
Net trade-in allowance : Any equity from a trade car. Rebates and non-cash credits : If the manufacturer or the dealer is contributing any amount towards your total signing amount. Amount to be paid in cash : Your out of pocket.
6. Gross capitalized cost
The lease gross capitalized cost is one of the main factors that your lease payment will be based on. It is comprised of the price of the vehicle, any ancillary products that you opted for, any service or maintenance contracts that you elect, and any dealer or lender acquisition fees. Typically with the exception of the lender acquisition fee, most of these items are negotiable. The lender acquisition fee varies with each lender, but expect amounts from $595 to $1095.
7. Capitalized cost reduction
This reflects the additional amount that you are paying at lease inception to lower your lease payment. Reference section 5a, “capitalized cost reduction”.
8. Adjusted capitalized cost
This simply is the net of your lease gross capitalized cost minus your capitalized cost reduction. More importantly, this is the amount that you are essentially borrowing from the lender and is an integral factor on what your lease payment will be.
9. Residual value
This is the value that the lender has estimated and guaranteed that your leased vehicle will be worth at the end of the lease. The residual value is another integral factor that calculates your lease payment. The significance of this value is discussed in detail under the “Residual Value” section of this website.
10. Depreciation and any amortized amounts
This is the total principle amount that you will be paying with your lease payments. It is calculated by taking the lease adjusted capitalized cost and subtracting the residual value.
11. Rent charge
This is your total interest amount for the lease deal and yes, there is an interest cost that you will have to pay. Some lease deals do however have negligible interest rates. This is discussed more in detail under the “Money Factor” section of this website. Do bear in mind that the interest amount listed in this line item is based on the total borrowed amount (adjusted capitalized cost), and NOT the depreciation.
12. Total of base monthly lease payment
This is the total cost of your lease payments not including sales and/or use tax. It is simply calculated by adding the depreciation and rent charge.
13. Lease term
This is simply as it states. Most lease deals are 36 month leases, but sometimes lenders offer special deals using unconventional terms such as 27 months or 39 months.
14. Base monthly lease payment
The base lease payment is calculated by taking the total of base monthly payment and dividing it by the term. This amount plus your tax will be your total lease payment.
15. Monthly sales/use tax
This is your monthly tax obligation and is determined by your tax jurisdiction. When leasing a car, in most states, you are not obligated to pay sales tax for the purchase price, rather, your tax will be paid on your monthly payment for your usage in your tax jurisdiction. If you move tax jurisdictions, this amount probably will change.
16. Total monthly payment
Your all-in monthly payment assuming you don’t move to a different tax jurisdiction or if your tax jurisdiction do not raise tax rates. Your base payment will never change.
Finding a great lease deal on a car, truck, or suv.
Leasing cars has been around for quite a while, but became a common mainstream method of driving new vehicles in the last 25 years. Within that time frame, vehicle lease programs and agreements have gone through many evolutionary stages in creating the lease deals that are offered today.
What type of vehicles make the best lease deals?
Generally, the best leases can be found on the cars, trucks, and sport utility vehicles (SUV) that each specific brand sells most of. For instance, if you were looking to lease a Honda SUV, the Honda CR-V typically will provide the best lease deal because the CR-V is essentially the volume SUV unit for Honda. If you are more interested in leasing a Honda car, then the Civic typically would offer the best deals. There are of course other considerations such as size or seating capacity as well as inventory levels and model sell downs, but if you are open, then using the “best selling unit” philosophy is a good foundation in finding your best lease deal. To help you with this, the following are strong volume units for each brand.
Acura
Acura is the upscale brand for Honda. Acura offers performance driven engineering packaged in a crisp design architecture and is strengthened by Acura’s proven reliability. This identity is exemplified by the current slogan of “Precision Crafted Performance”. The Acura line consists of the following vehicles. Acura sedans are the ILX Compact Sport Sedan, the TLX Performance Luxury Sedan, and the RLX Premium Luxury Sedan. Acura SUV’s are the RDX Luxury Crossover SUV and the MDX Three-Row Luxury SUV. Acura’s halo vehicle is the NSX Next-Generation Supercar. The best Acura lease deal is typically on the RDX.
Acura RDX
Alfa Romeo
Alfa Romeo is a boutique brand that has re-entered the American market. Alfa Romeo has been receiving great reviews for driving dynamics and Italian styling. The current Alfa Romeo model lineup is made up of three units. The Giulia is Alfa Romeo’s answer to the sports sedan, the Stelvio competes in the very important SUV segment, and 4C is designed for the weekend racer. With advertised lease offers typically starting with payments in the $300’s, the Giulia is Alfa Romeo’s best lease deal.
Alfa Romeo Giulia
Audi is a strong brand in the automotive landscape. For many years, Audi has set benchmarks for engineering and design. The current Audi model lineup is deep and full of variety. Audi sedans and sportbacks are comprised of the Audi A3, A4, A5, A6, A7, and the A8 flagship sedan with high performance variations named Audi S3, S4, S5, S6, and S8. The Audi RS3 and RS5 finish off this line as its super sport versions. Coupes and convertibles are represented by the Audi A5, TT, and R8. The Audi Q3, A4 Allroad, A6 Allroad, Q5, SQ5, Q7, Q8, and e-Tron make up Audi’s line of wagons and SUV’s. The Audi Q5 lease deal is best.
Audi Q5
BMW
The BMW brand is one of the greatest in the industry. BMW’s rich history is showcased by their deep line of performance driven luxury models. The BMW SUV lineup starts with the BMW X1 and is followed by the X2, X3, X4, X5, X6, and the top of the line X7. BMW sedans and coupes are comprised of the 2 Series, 3 Series, 4 Series, 5 Series, 7 Series, and 8 Series. The BMW Z4 is offered as their roadster and BMW i3 and i8 finish the line with BMW’s electric and hybrid choices. The best BMW lease deal typically goes to the BMW 3-Series but the X3 is also a very competitive lease.
BMW 3-Series
Buick
Buick was founded over 100 years ago. Even with its rich history, Buick has gone through many transitional stages leaving a brand that interestingly is not a well recognizable brand. Buick’s lineup of vehicles was once deep but currently only consists of five vehicles, the Lacrosse, Regal, Encore, Envision, and Enclave. They do have variations of the core line such as the Regal Tourx, but still is small in comparison to the days when Buick had offered many more vehicles. Many might think that the Buick Enclave is the brand’s best selling unit, but sale volume is lead by the Buick Encore which also represents the best Buick lease deal.
Buick Encore
Cadillac
Withstanding the test of time, Cadillac, founded a more than a century ago, represents the luxury brand of General Motors. The Cadillac brand is attracting great buzz with their new design architecture and strong marketing strategies. Cadillac is continuing their sedan traditions with offering the following models: CT5, CT6, CTS, and XTS. The all new CT4 will be introduced and added in 2020 representing the smallest of their sedan models. Continuing their SUV success is the XT4, XT5, XT6, and the Cadillac benchmark, the Escalade. Many might think that the Escalade represents Cadillac’s volume vehicle, but the actual honor goes to the XT5. The XT5 is Cadillac’s answer to the very demanding mid-size SUV market. The Cadillac XT5 lease deals are best due its volume and competitiveness of the segment. For those looking for the Cadillac sedan, the CT5 offer great lease deals as well.
Cadillac XT5
Chevrolet
The Chevrolet brand has been an American staple since the early 1900’s. Through its rich heritage, certain Chevrolet vehicles are and have been the manifestation of childhood automotive dreams. Pictures of iconic vehicles such as the Corvette and Camaro adorned walls for decades. Consumers loyalty to Chevy trucks are also unmatched. Today, Chevrolet offer a strong variety of vehicles. The following represents the current Chevrolet lineup. The Spark, Sonic, Cruze, Malibu, and Impala make up Chevy’s sedan models. Chevrolet SUV’s are comprised of: the Trax, Equinox, Blazer, Traverse, Tahoe, and Suburban. The Colorado, Silverado, and Silverado HD make up Chevrolet’s iconic pickup truck line. For the performance buyer, the Corvette and the Camaro with all its variations are still proudly made today. Chevrolet also produces an electric vehicle, the Volt. With such a line, there are many options to get a great lease deal. The bulk of Chevy’s volume is from the Silverado pickup truck, which allows for great Silverado lease deals. The honor of the second best selling Chevy goes to the Equinox, but as leases go, Chevy advertises great lease deals pretty much across their whole line.
Chevrolet Silverado
Dodge
An American icon, the Dodge brothers founded Dodge over a 100 years ago. Like other domestic brands, Dodge has gone through transitional stages during their rich history. One of the defining moments of Dodge’s history was the introduction of the Dodge Caravan, the world’s first minivan. Dodge is currently known for producing some of the most powerful vehicles such as the Hellcat and Demon, but interestingly, the Caravan is still the best selling vehicle for the brand. The Dodge lineup is pretty small, with only the Charger, Challenger, Durango, Journey, and Caravan as the current offerings. Their are variations to the line, but the core is still only 5 models. Leasing a Dodge is a bit of an abnormality in that the best selling vehicle is not the best Dodge lease deal. The Dodge Charger lease holds that position.
