WHAT TYPES OF LEASES ARE AVAILABLE?
When leasing a car, you generally have two choices: a single-payment lease and a multi-payment lease. In a multi-payment lease, you make periodic payments for the lease term. For example, if you lease your car for 36 months, you make a monthly lease payment for 36 months. But in a single-payment lease, you pay the full amount of the lease up front. The obvious question, then, is why would you choose a single-payment lease over a multi-payment lease?
HOW IS A LEASE CALCULATED?
There are three main parts of a lease: the gross capitalized cost, the capitalized cost reduction, and the adjusted capitalized cost. The gross capitalized cost is the price of the car. A capitalized cost reduction is anything you pay to lower this price, such as a trade-in car. The adjusted capitalized cost is the difference between the capitalized cost and the capitalized cost reduction—it is the number the dealership will use to determine your lease payment.
There is also a finance charge, called the “money factor.” The money factor is like the interest you pay on a loan. Why is this important? Because, as explained below, the money factor is supposed to be what sets the single-payment lease apart from the multi-payment lease.
WHAT ARE THE BENEFITS OF A SINGLE-PAYMENT LEASE?
When leasing a car, the dealership may suggest that a single-payment lease will save you money, especially if you are trading-in another car. If you trade in a car, the dealership is supposed to use the trade-in value of your car as a capitalized cost reduction to lower the price off of which the lease payment will be calculated. Also, in a single-payment lease, you should expect to pay a lower money factor because you are paying the full amount of the lease up front. This is not always the case.
WERE YOU OVERCHARGED FOR YOUR SINGLE-PAYMENT LEASE?
It is not uncommon to be cheated out of the benefits of a single-payment lease. In some cases, the dealership may not use your trade-in car as a capitalized cost reduction. Because the dealership is not using your trade-in car to lower the price that the money factor is applied to, you could be paying more interest on your lease.
In other cases, the dealership may cheat you out of your savings based on the way they calculated the lease payment. In this case, the dealership would add up the cost of each monthly payment and charges this amount as the single payment. This means that you are being charged interest on the full amount of the lease as if you had leased the car as a multi-payment lease.
In both of these cases, you could be scammed out of thousands of dollars. Check your paperwork! If you traded in a car, see if the dealership used your trade-in car as a capitalized cost reduction. Or look to see if the dealership calculated your single-payment lease by adding up the monthly payment and multiplied it by the number of months in the lease. If either of these happened to you, we are here to help.
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