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Understand leasing terminology

June 29, 2018 GMT

Car leasing has a language all its own. Before you consider a lease, make sure you understand what you are being told and what is on the lease contract.

Mileage allowance: This is the number of miles you can drive during the lease period without penalty. It is stated in terms of monthly allowance, or the total cumulative mileage. Typical penalties if you go over the allowance are 15-20 cents per mile.

Acquisition fee: This is a fee charged by leasing companies and banks to cover various costs of administering the lease terms. They average about $400 and are very seldom negotiable.

Adjusted capitalized cost: Simply put, this is the amount you are financing in the lease or the bottom line. This is the cost of the car you are leasing, including the tax, title, and license, minus any down payment, trade allowance, or rebates.

Capitalized cost reduction: A down payment or other credit that lowers the capitalized cost of a lease. The down payment may come in the form of cash and/or a rebate, trade-in allowance or other credit.

Money factor (or interest rate): A fractional number, such as .0075, used to calculate a lease fee or charge. The money factor is not an interest rate; it is based on a formula that lessors devise to determine their profit. While lessors are not required to disclose the money factor, you still can insist on knowing it. When automakers are running lease specials, the money factor can be as low as .00001.

Residual value: The car’s wholesale value at the end of the lease as projected at the beginning by the lease company. Higher residual values translate to lower monthly payments but increase the cost to buy the car at the end of the lease. This number is set in stone and you will know how much the residual value is when you enter into the lease.

Single-payment lease: A lease in which you can pay all of the lease fees and payments at the beginning. A likely user is a buyer who could pay cash to buy a car but wants to have a new vehicle every three years or so. There is often a lower interest rate on the lease since the lease company gets all its money up front.

There are other lease terms, but these are the most common. Understanding the leasing language will make you feel less intimidated.

Jerry Reynolds is an auto industry expert and the host of nationally syndicated Car Pro Show heard Saturday 11 a.m.-2 p.m. on News Radio KTRH 740 AM, and Sports/Radio 610 KILT AM, Saturday 11 a.m.-1 p.m., and online at www.CarProUSA.com.