Publish Date - December 31, 2018
Author: Greg Thibodeau
Car Lease Financing
Financing a Car Lease
The number one factor in getting a good finance rate for a car lease is good credit. Before pursuing financing for a car lease order copies of your credit reports and review them. Even if you are absolutely sure your credit is in good shape, it's a good idea to check your reports for errors. If you would like a copy of your credit report you can order them online. Sometimes you can even receive a free credit report. Take a look at myAutoloan.com for links to credit reporting agencies.
Assess Your Finances before Leasing a Car
After you have researched your credit reports, assess your financial situation before leasing a new car. Make sure you have enough income to cover your living expenses and then determine how much you can afford a month in payments. Monthly payments for car leases are usually lower than monthly payments if purchasing a car. Use myAutoLoan.com's auto lease calculator to help determine a monthly lease payment that fits your budget.
Educate Yourself about Car Lease Financing
The more you know about how car lease financing works the better deal you will get. It's especially important to learn car lease financing terminology. Here are some of the leasing terms you will encounter when applying for financing:
The Money Factor: Similar to the interest rate on a loan. It's used to calculate lease payments and is a difficult number to negotiate.
The Capitalized Cost: The amount the car is sold to the leasing company minus the cap reduction payment. It is also called the "cap cost" and is determined between you and the car dealer. Manufacturer incentives or factory rebates should be applied to the capitalized cost or passed on to you directly.
The Residual Value: The projected value of the vehicle at the end of the lease. The residual value is a number used to help calculate the monthly lease payment. The residual value is difficult to negotiate but you should always try.
The Manufacturer's Suggested Retail Price (MSRP): The MSRP is the sticker price of the car and is used to calculate the residual value.
Capital Reduction: Down payments or any other cash paid at signing lowering monthly lease payments. The allowance provided from trade ins is included in capital reduction.
Negotiating Car Lease Financing
You should always negotiate a car lease. Don't just accept what is offered. Many people turn to leasing because they want to have a low monthly payment. When negotiating, don't focus on the getting the lowest monthly lease payment. Negotiate the automobile purchase price. Payments depend on a low capitalized cost which in turn depends on the automobile purchase price.
Refinancing a Car Lease
Many people are familiar with the concept of refinancing their car loan to get a better interest rate. It doesn't work the same way with car lease refinancing. In order to refinance you would need to terminate your current lease early and that is hard to do affordably.
What is a Dealer Required to Tell Me about Financing?
There's a law insuring you are provided with the information needed for you to make an informed decision about your car lease financing. It's called the Federal Consumer Leasing Act (FCLA) and it protects you by requiring the leasing company to disclose information before a lease is signed including:
- The initial payment amount for the car you are leasing.
- Any fees or taxes you will be required to pay.
- The total number of payments you will pay for the lease and the monthly payment amount.
- What you will be charged for default or late payments.
- Your allowed annual mileage and what will be charged for excessive mileage.
- Contractual obligations related to early lease termination.
- If you will have the option to purchase the car at the end of the lease and its price.
- Payments or fees due at the end of the lease.
Your best tool in getting great car lease financing is knowledge. MyAutoloan.com wants you to be well informed about your financing choices. Come to our site to find out what you'll need to know to get the best car lease for you.