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Car Lease Rate. How to Get the Best Lease Rates |
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Car leasing is similar to buying with a loan in that a finance charge, often called a lease rate, applies. The lease rate is like a loan interest rate but is called "money factor," "lease factor," or simply "factor." You may ask, "Why do I pay a finance rate when leasing a car when I'm not actually borrowing any money?" "Isn't leasing like renting?" What is lease
rate? Your lease company or bank uses its own money to buy your vehicle from your dealer, and "lends" the vehicle to you during the course of the lease. The lease company or bank owns the car after it is purchased from your dealer. You are therefore using and tying up the lease company's money and should be expected to pay for the use of that money just as you would do for any loan or home mortgage. The rate that you pay for use of the money affects your monthly payment. Why do car
lease rates vary? Lease rates also depend on your credit score, just like with a loan. Leasers with high credit scores get the best rates. It's called
money factor or lease factor
The best lease rates are typically offered by finance companies associated with major car manufacturers. Called "captive" lease companies, GMAC, Ford Credit, and American Honda Finance are examples. Car makers have "deep pockets" and can afford to offer lower-than-market promotional rates to encourage sales and lower monthly payments.
Rates depend
on credit score People who have "prime" scores of about 680-700 or higher get the best rates. If you don't know your score, you should find out. People with poor credit scores will pay higher rates, or be refused altogether. See Credit Problems and Car Leasing for more details. How to evaluate
lease rates So, to convert loan APR to money factor, simply divide by 2400. Let's say that Bankrate shows a 6.66% APR for a 36 month new-car loan. Divide 6.66 by 2400 to get .00278 lease money factor. If your dealer is offering, say, a rate of .00175 (equivalent to 4.2% APR), you know you're getting a good deal because it's significantly better than the .00278 national average, based on loan rates. Conversely, if your dealer offers you .00395 (equivalent to 9.48% APR) your rate is higher than average and not so good. Make sure you know your credit score because it might be the reason for the higher rate. If you are shopping for a specific car make and model, and visit a number of dealers who sell that make, they are probably using the same "captive" finance company and will offer the same lease rates for the same car. Dealers cannot change lease rates set by their captive finance companies. Lease rate
isn't everything A few captive finance companies offer lease rate "buydown" programs which allows you to reduce your rate by putting down a larger security deposit. It's a good deal because you get the security deposit back at lease-end. Ask your dealer about the availability of such a program. Banks, credit unions, and other non-manufacturer finance companies sometimes offer good lease rates but watch for a corresponding not-so-great (low) residual value. They generally can't be as competitive as the "captive" manufacturer-owned finance companies. Summary Also see: How to Find the Best Car Lease Deals
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