A B C's of Leasing and Financing

The A B C’s of leasing and financing.

I will give you some of the most common terminology used for both leasing and buying along with a definition of that term
I have found that knowledge of generally will relieve anxiety caused by the unknown. Hopefully, this will explain the mysteries of leasing and financing.
• Acquisition fee
A charge included in most lease transactions that is either paid up front or is included in the gross capitalized cost. It usually includes gap insurance.
• Additional insured
A party that is covered by another party's insurance policy. Since the title is in the leasing company’s name, they need to be named on the insurance policy.
• Adjusted capitalized cost
The amount capitalized at the beginning of the lease, equal to the gross capitalized cost minus the capitalized cost reduction.
• Amount due at lease signing or delivery
The total of any capitalized cost reduction, monthly payments paid at signing, security deposit, title and registration fees, and other amounts due before you take delivery of the vehicle.
• APR (annual percentage rate)
The annualized cost of credit expressed as a percentage in a finance agreement. In a lease, there is no annual percentage rate.
• Base monthly payment
The portion of the monthly payment that covers depreciation, any amortized amounts, and rent charges. It is calculated by adding the amount of depreciation, and rent charges and dividing the total by the number of months in the lease. In most states, sales/use taxes are added to this base monthly payment to determine the total monthly payment. In our area, Ohio adds the taxes to the base monthly payment.
• Capitalized cost
Shortened term for gross capitalized cost or adjusted capitalized cost, both required disclosures under federal law. Some states require that the term "capitalized cost" be used in state lease disclosures.
• Capitalized cost reduction (cap cost reduction)
The sum of any down payment, net trade-in allowance, and rebate used to reduce the gross capitalized cost. The cap cost reduction is subtracted from the gross cap cost to get the adjusted cap cost.

• Closed-end lease ("walk-away" lease)
A lease in which you are not responsible for the difference if the actual value of the vehicle at the scheduled end of the lease is less than the residual value, but you may be responsible for excess wear and excess mileage charges.
• Depreciation
The amount of the decrease of the vehicle's projected value through normal use during the lease term.
• Disposition fee or disposal fee
A fee charged by a leasing company if the vehicle is not purchased. Honda does not charge this fee.
• Early termination
Ending of the lease before the scheduled termination date for any reason. The reason may be voluntary or involuntary (for example, the vehicle is returned early, stolen, or totaled, or you default on the lease). In most cases, there will be a charge.
• Equity
In an installment sale or loan, the positive difference between the trade-in or market value of your vehicle and the loan payoff amount. When the loan is paid off, the equity is the market value of the vehicle.
• Excess mileage charge
A charge by the leasing company for miles driven in excess of the maximum specified in the lease agreement.
• Excessive wear-and-tear charge
Amount charged by a leasing company to cover wear and tear on a leased vehicle beyond what is considered normal. Honda will forgive up to $1500 in excess wear and tear.
• Fees and taxes (official fees and taxes)
The total amount you will pay for taxes, licenses, registration, title, and official (governmental) fees over the term of your lease. Because fees and taxes may change during the term of your lease, they may be stated as estimates.
• Fixed price purchase option
Your right to purchase the vehicle at scheduled termination for a fixed price specified in your lease agreement.
• Gap coverage (guaranteed auto protection, or GAP)
A plan that provides you financial protection in case your leased vehicle is stolen or totaled in an accident. It will generally pay the difference in the amount that an insurance company pays and the amount owed in excess of that figure. Basically, your obligation will be satisfied in the event of total loss.
• Gross capitalized cost (gross cap cost)
The agreed-upon value of the vehicle, which generally may be negotiated, plus any items you agree to pay for over the lease term such as taxes, fees, service contracts, etc.
• Lease
A contract between you the lease company for the use of a vehicle or other property, subject to stated terms and limitations, for a specified period and at a specified payment.
• Lease term
The period of time for which a lease agreement is written.
• Lessee
The party to whom the vehicle is leased. In a consumer lease, the lessee is you, the consumer. The lessee is required to make payments and to meet other obligations specified in the lease agreement.
• Mileage allowance or mileage limitation
The fixed mileage limit for the lease term. If you exceed this limit, you may have to pay an excess mileage charge.
• Monthly sales/use tax
The state and local taxes that you must pay monthly when you lease a vehicle. These payments, if any, are added to your base monthly payment and paid as part of your total monthly payment.
• Personal property tax
A tax on personal property. Generally the responsibility of the person leasing the car. Either included in the monthly payment or billed by the leasing company.
• Purchase option
Your right to buy the vehicle you have leased, at the end of the lease term, according to terms specified in the lease agreement.
• Rent or rent charge
The portion of your base monthly payment that is not depreciation or any amortized amounts. This charge is similar to interest on a loan
• Residual value
The end-of-term value of the vehicle established at the beginning of the lease and used in calculating your base monthly payment.
• Sales/use taxes
Sales/use taxes, which vary from state to state, are assessed on both leased and purchased vehicles. There are often differences in what amounts are taxed and when the taxes are assessed. In a lease, sales/use taxes may be assessed on (1) the base monthly payment; (2) any capitalized cost reduction; and (3) in a few states, the adjusted capitalized cost. In most states, the sales/use tax on the base monthly payment is paid monthly; in some states, however, the tax is due at lease inception. Sales/use taxes on the capitalized cost reduction and the adjusted capitalized cost are usually due at lease inception. If you exercise any purchase option, separate taxes may apply.
• Security deposit
An amount you may be required to pay, usually at the beginning of the lease that may be used by the leasing in the event of default or at the end of the lease to offset any amounts you owe under the lease agreement. Any remaining amount may be refunded to you.
• Single-payment lease
A lease that requires a single payment made in advance rather than periodic payments made over the term of the lease. This lump-sum payment should be less than the total amount you would pay were you to make periodic payments over the term of the lease.
• Title
The legal document that identifies the owner of the vehicle. The leasing company owns the vehicle and keeps the title. In a purchase, the title is in your name and held by the lender until it is paid for.
• Total monthly payment
The base monthly payment plus monthly sales or use taxes and any other monthly charges.
• Total of payments
The sum total of the monthly payments over the period of the lease or contract.
• Trade-in
The net value after your pay off is subtracted of your vehicle that is credited toward the purchase or lease of another vehicle.

This is in no way a complete list. If you have a question on anything that I don’t have listed, you can email me at larrydavis@mosesautonet.com and I will get you an anwer.
Thanks for reading and until next time have a Happy Honda day.
Larry

Lease or Finance

In my first article on leasing, I explained some common misconceptions about leasing. Now that you understand those let’s see which option, financing or leasing, best suits your circumstance.

Choosing between leasing and financing is as important as choosing the right model. Below are some benefits of both leasing and financing. The following should help you decide how to purchase a new Honda:

LEASING

In a lease, you do not purchase an automobile. You contract to use it for the first, and best, period of its life. Following are some additional benefits to leasing a Honda.


Lower Monthly Payment - If the finance period is the same, your monthly payments will be lower when leasing (vs. financing) because your payments will be based on the vehicle's estimated depreciation. (You are contracting to use a portion of the car's value, rather than paying for the entire car.)

A New Car More Often - Your taste and preference may change, and a short-term lease makes it easy to drive a new car more frequently. Additionally, you may have needs for a larger or smaller car in a few years, and a lease makes it easy to plan for such changes.

Guaranteed Future Value - You don't have to worry about resale value. If your car depreciates more than the estimated residual value in your lease contract at full term, you can turn it in at the end of your lease term. But if it's worth more, you can buy it and keep it or resell it. A lease gives you an option.


Less Cash Up Front - One of the biggest advantages of a lease is that it does not usually require a substantial down payment. In many states, you can even pay the sales taxes as part of your monthly lease payment, rather than in a lump sum.

FINANCING

If you typically keep your vehicle for five to ten years, then financing may be your best option. Here are some of the reasons financing might be the best option for you.

Pride of Ownership - Ownership can instill a sense of pride. It can also build equity. Payment by payment, an owner's equity may increase.

No Restrictions on Mileage - This is important to consider if you drive more than 12,000 to 15,000 miles per year.

Make Changes to Car's Appearance - You can alter the interior or exterior to suit your taste (though your choices may affect the resale value.)

These are just a few of the reason to choose either to lease or finance.
All of our sales consultants are trained to assist you in making the best possible choice for you.

Next time we will deal with all the mumbo jumbo of the different terms for both leasing and financing.

Until then have a happy Honda day.

Larry