Rental plans have strict requirements for the condition of a rented vehicle upon return. Where available, the provisions on excessive wear and tear are set out in Appendix D. Leasing contracts usually (but not always) offer the option to purchase the vehicle at the end of the rental term. If the option is available, you can charge the vehicle at a predetermined price (often the residual value of the vehicle) or at the market value (this value can be calculated using one or more market leaders such as « Blue Book » or « N.A.D.A.)) plus accumulated call option fees. In both valuation methods, it is a call option. You can return the vehicle at any time at the end of the rental if you do not wish to purchase it. A purchase option fee is required for many plans. At the end of the vehicle rental period, the renter returns the vehicle to the lessor or, if the option is given, agrees to purchase the vehicle. If the renter decides to purchase the vehicle, his lease payments will be credited to the total purchase price. « Gap Insurance » is used to protect you in the event that your rented vehicle is stolen or summarized in the event of an accident. From the point of view of leasing companies, the total loss of the vehicle is a form of premature termination of the lease.
Typically, your insurance company would reimburse the claim. But what if the market value of the vehicle is less than the amount you owe to the leasing company? This possible difference is called a deviation, and you are responsible for paying it to the leasing company. Some leases offer a « waiver of the gap » that protects you from such a lack of insurance if you meet certain insurance requirements, but others do not. Gap insurance covers your risk in leases that do not offer a « waiver of the gap ». We believe that you should always apply for this insurance and take out it, whether you are renting from a manufacturer`s leasing company or an independent leasing company. Let`s say you decided to rent a car instead of buying one. Once you`ve selected a car, you`ll receive a jargon-filled rental agreement that you may not fully understand. Many leasing companies charge an « assignment fee, » which is essentially a processing fee. The amount varies from one leasing company to another. Some dealers have inflated the transfer fee and keep the portion they do not have to give to the leasing company as an additional profit.
Some leasing companies hide assignment fees in the monthly calculation of lease finance fees instead of expressing them as separate fees. Mileage It is leasing that speaks of a deposit. Your combination of a cash deposit, the value of a car with which you accept payment, and the discount you award to the dealer will result in a reduction in activated costs. The greater your reduction in capitalized costs (the more you deposit), the lower the amount you will finance and the lower your monthly payment. « Additional Contract Miles » means Miles for which you enter into a contract in advance for « Eligible Miles ». Additional contract miles, if desired, will be contracted at the time of execution of the lease for an additional fee, usually expressed in cents per mile. Payments and Penalties The lease agreement sets out the terms of lease payments and all penalties associated with mileage overruns and wear and tear. The tenant should take the time to read the fine print regarding the payment and payment plan to make sure they make sense and do not create a situation where the tenant has to step out of their pocket for more than what has been agreed. « Excess Non-Contractual Miles » means Miles that you use in excess of the « Eligible Miles » and on any additional « Contracted Miles » that you have included in the Rental Agreement. You will be charged a penalty for excess contract miles at the end of the lease. This penalty, usually expressed in cents per kilometre, can be quite costly.
The « APR » is the annual percentage rate of charge used in the calculation of lease payments. It can be converted into a monetary factor by dividing it by 2400. For example, an APR of 8.1% is roughly equivalent to a monetary factor of 0.00336. Leasing companies may use monetary factors or APRs to express the financial terms of a lease. When a leasing company provides an APR, we list it both and an estimate of the monetary factor in Appendix A. The residual value is calculated before you sign the lease. Most leasing companies use the Automotive Leasing Guide (ALG), an industry guide that calculates the expected values of new cars after rental. That is why it is so important to first negotiate the selling price of the car before renting. Car dealerships love the confusing nature of a lease because it`s easy for them to recoup additional profits without you realizing it.
The « residual value » is the value that the leasing company theoretically estimates the vehicle will have at the end of the lease term. For example, an MSRP vehicle with an MSRP of $20,000 with a residual value of 56% is estimated at $11,200 at the end of those two years on a two-year lease ($20,000 by 56% equals $11,200). The difference between the residual value and the capitalized costs is the amount of money you will have to repay during the period of your lease (you will also have to pay financing fees or interest on the amount of money that the leasing company has tied up in the car). The residual values change radically with the duration of the lease and the number of kilometers traveled per year. Some makes and models of vehicles are known to retain their resale value better than others and therefore have higher residual values. In addition, manufacturers sometimes agree to buy cars at the end of the lease at a higher price than the car is likely to actually be worth on the market. By subsidizing residual value in this way, the automaker keeps lease payments lower than it would otherwise, hoping to rent more cars. Subsidizing residual value has about the same effect as a factory-to-customer discount. The residual value sometimes has little to do with reality, but it is very important because it is used to calculate your monthly payments.
When you rent a car, the dealer sells the vehicle to the leasing company at the price you are negotiating (read our negotiation guide). The leasing company then turns around and rents the car to you based on that purchase price. Do you want to buy or rent? Use our calculator to decide how many cars you can afford. « Capitalized costs, » often referred to as « capping costs, » should be divided into « gross » cap costs and « adjusted » cap costs. Gross costs include the agreed price of the vehicle, any fees, extended service plans, gap insurance premiums or other surcharges you may have to pay. Adjusted capping costs are gross capping costs minus reductions due to trade, cash or discounts. Adjusted capping costs are the amount that is actually funded over the life of the lease. Many lease announcements and some dealers suggest that cap costs are in line with MSRP. That`s not true. Renting a vehicle with an upper msRP limit is equivalent to buying a vehicle at the price of the full sticker, which is much more than most customers would have to pay. It is recommended to use a vehicle rental agreement when a vehicle lease is negotiated between two parties if no dealer rental form has been provided.
For example, you can use a car rental agreement if you rent a car or truck from a friend or family member. When you sign a car rental or rental agreement, you need to pay attention to certain conditions. These provisions are the ones that control your rental costs. If you do not read them carefully, it will lead to higher monthly costs. These include the mileage reserve, the normal wear and tear clause and the terms of payment of the lease, including fees and penalties. The « money factor » is a number used to calculate your rental payment. It is roughly equivalent to the « apr percentage rate » of the lease multiplied by 2400. For example, a monetary factor of 0.00336 roughly equals an APR of 8.1% (2400 times 0.00336 equals 8.1). Monetary factors are different for different vehicle models and rental conditions, and different leasing companies usually have different monetary factors.
If everything else is the same, a lower monetary factor means lower payments. Leasing companies may use monetary factors or APRs to express the financial terms of a lease. When a company provides a monetary factor, we list it both and an estimate of the APR in Exhibit A. The « leasing company » is an institution that buys the vehicle from the dealer and leases it to you. It can be a financial arm of one of the manufacturers, such as Ford Motor Credit, General Motors Acceptance Corp. or Toyota Motor Credit. However, there are independent leasing companies that are often backed by banking institutions such as Chase Manhattan, Wells Fargo, General Electric Capital Auto Lease (GECAL), Bank of America, etc. In any case, the leasing company buys the vehicle from the dealership and leases it to you for a certain period of time. .
