Frequently asked questions
What is a money factor and how do I convert it to APR?
The money factor is the lease equivalent of an interest rate, expressed as a small decimal (like 0.00125). Multiply it by 2,400 to get the approximate APR: 0.00125 × 2,400 = 3.0%. A lower money factor means lower finance charges. Dealers are required to disclose it if you ask.
How is residual value determined?
The leasing company (not the dealer) sets the residual as a percentage of MSRP based on projected depreciation for that make, model, and term. You cannot negotiate it. A higher residual means lower depreciation and a lower payment, which is why vehicles that hold their value well lease more cheaply.
Should I put money down on a lease?
A down payment (cap cost reduction) lowers your monthly payment but does not reduce your total cost significantly because lease finance charges are based on both the net cap cost and residual. Worse, if the car is totalled or stolen, you lose that cash. Many advisors recommend keeping money down to a minimum on a lease.
What fees are typically included in a lease?
Common fees include the acquisition fee (charged by the leasing company, typically $500–$1,200), documentation fee, registration, and sometimes a disposition fee at lease end. The acquisition fee is usually capitalized into the lease; the disposition fee is paid when you return the car.
Can I negotiate the selling price on a lease?
Yes, and you should. The negotiated price (capitalized cost) directly reduces your monthly payment. Negotiate it exactly as you would on a purchase. Every dollar off the price reduces the depreciation component of your payment by that dollar divided by the term.
Why is my monthly payment different from the dealer's quote?
Dealers may include fees you are not accounting for, apply tax differently (some states tax the full price, others only the payments), or use a slightly different residual or money factor than advertised. Ask for the lease worksheet showing gross cap cost, net cap cost, residual, and money factor to reconcile.
Is leasing cheaper than buying?
Leasing has a lower monthly payment than buying for the same car, but you own nothing at the end. It costs more long-term if you always lease, but can be cheaper short-term and is often appropriate if you prefer a new car every 2–3 years and drive under the mileage cap.