Questions asked about Leasing or Financing

Amato Automotive Group is here to provide answers to frequently asked questions by our customers.  Below are some questions we often get when people are trying to decide between whether to purchase or to lease their next vehicle.

Are monthly payments necessary?

Unless you're in the position to pay cash for a new or pre-owned vehicle, you'll need to establish a payment plan to obtain that vehicle. Two options exist - taking out a loan or leasing.

How do loans and leases differ?

When you take out a loan, all of the money used to pay it off applies to your eventual ownership of the vehicle. The initial down payment and principal on the loan cover the total cost of the purchase. Lease payments, however, apply only to the use of the vehicle. The total sum of payments covers the vehicle's depreciation over the time you drive it and is usually less than the outright price of the vehicle.

When is ownership transferred?

When paid in full, a loan terminates and you assume ownership. Your bank sends you the title that had been held while the loan maintained an outstanding balance. When a lease period ends you forfeit the vehicle to the lessor, unless the lessor offers to sell the vehicle afterwards. During the entire lease period the lessor maintains ownership and simply allows you to use the car. Ownership is only transferred if you chose to buy the vehicle after the lease terminates.

How are monthly lease rates determined?

In formulating a monthly payment structure, a lessor is primarily concerned with the extent to which the vehicle will depreciate throughout the lease and the cost of borrowing money to finance the car during that period.

Three key elements:

First, the adjusted capitalized cost is determined. This figure represents the real purchase price after elements such as the down payment, incentive discount and trade-in credit are deducted from the capitalized (actual) cost, while any fees or charges (e.g. destination) are added.

Second, the residual value, or estimated value of the vehicle at the end of the lease, is determined and then subtracted from the adjusted capitalized cost to yield a depreciation figure. The residual value depends on the length of the agreement, expected mileage and make/model of the vehicle.

Finally, a lessor assesses the money factor, a number that correlates with the cost of borrowing money during the lease period.

While these terms may seem unfamiliar, the Federal Reserve Board now requires dealers to publicize all leases' down payment amounts, lengths, residual values and interest rates.


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