Depreciation. When you purchase the car, you pay for the whole thing. When you lease a car, you pay for the difference between the negotiated sale price (including fees) and the predicted amount that it will be worth at the end of the lease term. This difference is named depreciation.
2. MSRP. This abbreviation stands for “Manufacturer’s Suggested Retail Price” meaning the purchase price that a vehicle’s manufacturer recommends it be sold for at the point of sale. It is also called a “sticker price”, as it appears on the vehicle’s window sticker.
3. Residual Value. The amount that the car is expected to be worth at the end of the lease is called its residual value. Your residual value is based on your parameters. First, is the number of miles per year you agree to drive, which is typically from 5,000 to 20,000 per year. Second is the term of the lease and it is up to you to choose while normally it may be 12,24, 36 or 39 months and more.
4. Money Factor. While traditional vehicle financing includes an interest rate, lease includes a money factor, which is not quite the same as an interest rate. The money factor can be translated into the more common annual percentage rate (APR) by multiplying the money factor by 2,400. What is the difference between leasing and financing a car? Lease is a cheaper alternative to purchasing a car outright or via finance. You can enjoy all the benefits of driving a new car, but you don’t have to worry about depreciation because you don’t own the vehicle. If you choose to buy a car, you pay for the entire value of a vehicle. Unlike buying, you only make monthly payments for a portion of a vehicle’s total value, only during the time you’re driving it. In other words, you’re paying for the vehicle’s depreciation throughout the lease term. Moreover, when finance a car, you pay out a large upfront fee or take out a finance deal, while lease gives you the flexibility to pay fixed monthly instalments. You can also choose to include the cost of maintenance and service in your agreement, potentially saving you money in the future and reducing the amount of time you spend off the road.