Equipment Leasing

There are three main terms in car leasing that are confusing:

Capitalized Cost. The capitalized Cost is simply the selling price of the vehicle. Now, wait a minute! It's not That simple! Almost, but not quite!

You've got your Gross Capitalized Cost which is the selling price of the vehicle (Which you negotiated just like you were buying...OK?!), plus all other pertinent fees like the Acquisition Fee if any, dealer title fees, payoff on your trade, Extended Warranty, Credit Life Insurance, Accident and Health Insurance, Gap Insurance and any other fees that might come into play.

Then there is the Adjusted Capitalized Cost which is the Gross Capitalized Cost minus any reductions such as net trade-in allowance, cash down, rebates, taxes, license fees and registration fees. Are you getting all of this?

Residual Value. The Residual Value represents the estimated value of the car you're leasing at the end of the lease term. These values are published monthly in the form of a percentage or a dollar amount, most commonly in the American Lease Guide (ALG). The higher the Residual Value the lower your payments! Some vehicles hold their value better than others, so when you're choosing a vehicle check this out carefully.

The Money Factor. Essentially, the Money Factor is the same as the Interest Rate on a loan.

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