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Understanding A Vehicle Lease Agreement

Some takers buy their vehicles when their leases expire. They love the car and know it has been treated well. However, the purchase price is the residual value indicated in their lease. And most homeowners refuse to negotiate a lower price. Leasing vehicles generally have strict coverage requirements and can therefore cost more than your usual “own” vehicle. Mileage Limits One of the reasons people rent instead of buying a car is to have a new car every year and not be bound to a long-term commitment with the vehicle. The trade-off for the taker is that the car group limits the number of miles that can be driven each year, usually between 12,000 and 15,000 miles. The reason for these restrictions is to assure the automotive group that at the end of the lease, there is still some value that allows them to sell the car in the used car market and earn some money. The “money factor” is a number used to calculate your lease payment. It corresponds approximately to the “annual percentage” of the lease when multiplied by 2400. For example, a monetary factor of 0.00336 in an 8.1% APR (2400 times 00336 corresponds to 8.1).

Monetary factors differ for different vehicle models and rental conditions, and different leasing companies generally have different monetary factors. Everything else is the same, a lesser monetary factor means lower payments. Leasing companies can use either monetary or RPOs to express the financial terms of a lease. When a company indicates a monetary factor, we list it and an estimate of the RPA in Schedule A. So instead of waiting 42 months to see how the value of the used car turns out, the leasing company expects it. In the video above, they think the car will be worth $12,325 at the end of the lease, and they call it the residual value. Depreciation is the difference between the value of the vehicle when it is new and its residual value. In other words, it is the decrease in the value of the vehicle during the rental period. Amortization costs represent the majority of the monthly rental agreement. Homeowners need minimum insurance coverage that may be higher than what you usually wear.