An auto lease involves paying for the use of a vehicle for a certain amount of time as determined by your lease contract. When the lease ends, the vehicle is then returned.
Financing a purchase, on the other hand, means borrowing money to pay for the vehicle outright over the course of your financing term, after which you become the vehicle owner.
Read on to learn more about different parts of the leasing process to help you decide if leasing is right for you.
Key components of a lease
Capitalized cost (cap cost) – The price of the vehicle. This is negotiable and can be reduced in different ways such as by putting cash down or adding a trade-in to the deal. It can also be increased if the vehicle being traded in has negative equity; a situation where you owe more than the vehicle’s worth.
Capitalized cost reduction – Anything that reduces the cap cost. It could be cash down, trade-in equity, a manufacturer’s rebate or a dealer discount.
Depreciation – A vehicle’s estimated decline in value during the lease term.
Disposition fee – Charged to cover the costs of returning the vehicle at the end of the lease. The cost is spelled out in the lease contract so you will know upfront how much it will be.
Excess mileage fees – Fee per mile, paid at the end of the lease in the event you exceed the agreed-upon mileage allowance.
Excess wear fees – Wear beyond normal use can result in additional charges at lease end.
Money due at signing – Total upfront costs paid to lease a vehicle. Money due at signing typically includes any down payment, the first lease payment as well as applicable taxes, registration fees and any security deposit.
Money factor – The cost to lease. Much like financing has a cost to borrow (the interest charge), leasing has a cost to lease. Also like financing, a lease offer made is based on a shopper’s credit history and their likelihood to pay.
Rent charge – Also known as a lease charge, this is one of the factors used to calculate the monthly payment.
Residual value – Estimated value of a vehicle at lease end. It varies depending on the length of a lease and the miles contracted.
Security deposit – Typically equals one month’s payment rounded up to a designated figure.
Total monthly payment – This is calculated as follows: depreciation + rent charge + monthly sales or use tax. Check with your dealer to see how your state calculates taxes on auto leases. Keep in mind that most initially quoted payments are not the total monthly payment because they do not include the taxes. The total monthly payment is the final payment that you will be required to make each month.
What are the options at lease end?
When you choose to lease a vehicle through Chrysler Capital, you have several attractive options as the end of your lease term approaches. You may decide to lease a new vehicle, purchase a new vehicle or purchase your current vehicle. Whichever appeals to you, or whether you simply decide to turn in your vehicle, we’re here to serve your needs.
The Chrysler Capital Content Team brings decades of experience in auto financing and content creation to each of its articles. We’re driven to help vehicle shoppers and our customers have the best experiences possible.
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