![]() The lessor predicts the value of what that vehicle will be worth at the end of the lease term and subtracts that from the total cost of the vehicle. You’re essentially paying for the use of it for the time that you’re going to drive it. Leases are typically shorter terms than financings, usually in the 24- to 36-month range.Ī lease is different than a financing in one significant way: In a lease, you don’t “own” the vehicle. Lease Term – Similar to a financing, this is the length of the lease, described in months.If the money factor is 0.0025, it’s roughly equivalent to an annual percentage rate of 6.0% on a financing. To understand the interest rate of the lease, multiply the money factor by 2,400. Money Factor – The money factor is a different means of calculating the interest rate.Depreciation – the amount of value the lessor predicts the vehicle will lose over the term of the lease.Residual Value – the amount the lessor predicts the vehicle will be worth at the end of the lease. ![]() Capitalized Cost Reduction – anything that lowers the capitalized cost, including cash down payments or trade-in value.Capitalized Cost – This is similar to “vehicle price.” It’s the selling price of the vehicle before any down payments, trade-ins or anything else is calculated into the lease.The variables of a lease are similar to those of a financing, but they have different terminology: And depending upon your state, there may be sales tax advantages to trading versus selling the vehicle privately. You can trade a car whether you plan to finance or lease a new Subaru. The trade-in value works the same way as a cash down payment, directly lowering the amount of money you need to finance. The other major means of lowering your monthly payment is by trading in your current vehicle. A higher credit score will typically allow you to take advantage of the lowest possible APR available. Credit scores generally range between 300 and 850, with 850 being more creditworthy. ![]()
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