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Understanding how a lease works?

Now that you know that lease is a separate component of the vehicle transaction and your dealer will be making additional money out of this component, why not look for financing under your own terms instead of theirs?

Before you start shopping for the car lease, you must have a basic understanding of the lease mechanics. All the leasing basics have been previously explained in ’ Chapter 1’ where we explained terms such as residual, money factor and MSRP. You cannot shop for the best leasing rates without the understanding of these fundamentals. To make it simple, here is a brief overview of how leasing works.

Car leasing is based on the concept that you pay for the amount by which the value of the vehicle depreciates during the period you are driving it. Depreciation is the difference between the original MSRP value of the vehicle and its residual value. This is the primary factor that determines the cost of your lease. A smaller difference means low lease payments and a better deal.

Car leasing is very different from renting a vehicle. Leasing a vehicle is flexible and it is more like an innovative mode of driving a car you like. You are paying a portion of the vehicle you use along with financing costs. You are allotted a certain number of miles on the basis of your driving habits. The lease term is either for 24 months, 36 months or 46 months. As the lease ends, you can either return the car or you can have the option of purchasing it at a predetermined residual value.

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