Department | New Car Loans

Leasing Keys: Residual Value and Capital Cost

Are you thinking about leasing a car? If so, you are not alone. Many car shoppers choose the leasing option because it can offer so many benefits, but you need to familiarize yourself with the process before you take it on. Understanding leasing requires that you understand its two key components: residual value and capital cost. Read on for more information about both.

What Is Residual Value?

Most consumers have no idea what residual value is, but it plays an integral role with leasing. With a lease, what you are actually paying for is the difference between the car’s value now and its value when you return it after the lease is up. This is called the residual value and is determined by the dealer. Generally, for a 36- month lease, you can expect a residual value of at least 50 percent.

What Is Capital Cost?

The capital cost of the vehicle involves the MSRP (manufacturer’s suggested retail price). You can negotiate this number down before you sign your lease. You do not have to accept the dealer’s first offer. Capital costs are also brought down by trade ins, down payments, and any rebates you might have. One thing you must watch out for is if the dealers sets the capital costs higher than the MSRP. This will make it look like you are getting a deal when you really aren’t. Remember that leases can save you money, but you have to watch to make sure the dealer doesn’t bury you in expensive hidden fees.

Now you can use your knowledge of residual value and capital cost to help you find the best lease possible. Once you get a lease, you will be stuck with it for several years. Thus, you want to make sure that those years go as smoothly as possible. Discuss residual value and capital cost with the dealer before you sign any lease documents to making your leasing experience a pleasant one.

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