How does Leasing Work?

Leasing is an attractive alternative for many of our customers that are looking to get into a new vehicle without financing the entire cost of the vehicle. Leasing is a form of financing in which you only pay for the depreciation of the vehicle plus interest and tax. Lease monthly payments are typically less than a conventional monthly payment. Lease terms are also shorter in duration with 24 and 36 months being the norm. Leases do come with mileage restrictions, as the mileage on a vehicle is a large part on how much it has depreciated since it was new. Mileage options start at 10,500 miles per year and go up to 19,500 miles per year. Taxes are also less on a lease. When you purchase a vehicle, you pay tax on the vehicle's selling price minus your trade value, if you have one. Conversely, on a lease, you only pay tax on the monthly payment which is included in the monthly payment itself.

A few leasing terms explained:
Gross Capitalized Cost - This is sometimes shortened to just "gross cap cost" and is essentially the selling price of the vehicle plus anything that you want to include into the lease such as accessories. At Hastings Ford Lincoln, the selling price is always the same whether you buy the vehicle or lease it. It doesn't matter what you buy, or how you finance it, you get the same great price either way.

Capitalized Cost Reduction - This would be anything that would reduce the gross capitalized cost (selling price) such as cash down, trade-in equity, or manufacturer rebates.

Adjusted Capitalized Cost - Also referred to as the "net cap cost", this is the Gross Cap Cost (selling price) minus any Cap Cost Reductions (cash down, trade equity, rebates, etc...). This is the value that will be used in determining your lease monthly payments.

Term - This is the length of the lease measured in months. A typical lease is 24 or 36 months.

Residual Value - This is the value that the manufacturer believes your vehicle will be worth at turn-in time. This value is computed based on a percentage of the vehicle's MSRP and also depends on your mileage per year selection and the lease term length (24 or 36 months). The residual value is computed at lease origination and will not change during your lease term. This will also be your lease-end purchase price (plus a purchase fee) if you chose to buy-out your lease at the end of your term.

Depreciation - This is the value that your vehicle has lost since it was brand new. On a lease, depreciation is computed by taking the Adjusted Cap Cost minus the Residual Value. Your lease monthly payment is computed by taking the depreciation of the vehicle divided by the term (number of months) with tax and interest added in.

You should consider leasing if:
  • You like driving a newer vehicle more often and trade vehicles every 2-3 years.
  • You drive less than 15,000 miles per year (especially under 12,000 miles per year).
  • You want a cheaper monthly payment on a new vehicle.
  • You want a vehicle that is under warranty more often and reduce your money spent on costly repairs that can happen after the warranty is up.
  • You want to pay less tax and have it included in your monthly payment instead of paying all of it during your first DMV visit.
  • Your vehicles typically do not get damaged above what would be considered normal wear and tear.
  • You don't typically modify your vehicle more than just simple accessories such as floor mats, mud flaps, bed liners, etc...

You should consider buying (instead of leasing) if:
  • You drive more than 15,000 miles per year.
  • You typically keep your vehicles longer than 48 months and like the idea of eventually owning a vehicle outright without having a monthly payment.
  • Your vehicles tend to get more wear and tear than what would be considered normal.
  • You like modifying your vehicle to meet your own style and it would not be easy to return it back to a like-stock condition.

Frequently Asked Questions:
"What kind of insurance do I have to carry on a leased vehicle?"
You will need full coverage insurance just as if you purchased the vehicle and had a loan on it.

"Will I get charged for minor damage on my leased vehicle?"
You will not get charged for items that are considered within normal wear and tear. You can find Ford's guide on normal wear and tear by clicking here. However, if an item is found to be outside of normal wear and tear, you may be charged for it during lease turn-in.

"What if I go over my allotted miles?"
Mileage restrictions are also enforced at the end of the lease during turn-in. For example, if you have a 12,000 mile per year lease for 36 months, you would need to be under 36,000 miles at turn-in. If you are over your miles, there will be a mileage charge assessed. Ford's mileage charges range from $0.10 to $0.20 per mile. The amount per mile charged depends on the vehicle's MSRP when it was originally new.

"Can I buy out my vehicle at the end of my lease if I want to keep it?"
Yes. The leased vehicle's residual value is computed during the lease origination and is shown to you during signing. If you want to buy the vehicle at turn-in, you simply pay the residual value plus a purchase option fee. We can also assist you in financing the remainder of your vehicle at that time using a conventional vehicle loan.

"What are my other options when my lease is up?"
You have a couple options at turn-in time. You can buy the leased vehicle, you can buy or lease another new vehicle, or you can return your lease to the originating dealer. You can read more on Ford's website about lease turn-in by clicking here.
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