Before leasing a car, it’s critical to know how much it will cost you at the end of it all. But it is not enough to use the figures exemplified by the car dealership. Knowing what goes into calculating car lease costs lives the way to go.
So how much is a lease on a $45000 Car? The simple answer is that it depends on several factors you should be aware of. This article discusses these factors in greater detail with an actual car lease example to help you understand how to arrive at monthly payments.
How Car Lease Payments are Calculated
Car lease payments depend on several variables, including the vehicle’s current value, the estimated residual value, the least term, and the money factor or interest rate. Here is a detailed review of each of the factors and how they affect the cost of leasing a $45,000 car:
1. The Vehicle’s Value
The vehicle’s value or the manufacturer-recommended sale price (MRSP) is what you would pay if you purchased the vehicle in cash. The current value of the car is used, along with the residual value and depreciation, to determine the lease cost.
How much is a lease on a $45000 car? Suppose you wish to lease a $45,000 car for 36 months. By the end of the lease term, the vehicle could have depreciated by 40% of its value, or $18,000. The vehicle’s depreciation is what you’re effectively borrowing from the dealership.
Therefore, the dealership will charge interest on the $18,000 representing depreciation and not any other amount. That’s why leases tend to cost less than car loans.
However, you don’t have to lease a vehicle based on the vehicle’s original price. You can negotiate the $45,000 price down to $40,000. You would reduce the depreciation to $13,000 instead of $18,000. Therefore, you should expect significantly lower monthly payments.
2. Residual Value
A vehicle’s residual value is its expected value when the lease term expires. Lenders and dealerships determine the residual value at the beginning of the lease. The difference between the vehicle’s current value and the residual value is its expected depreciation.
Based on the $45,000 car, the residual value is $27,000 before and after negotiating the price to $40,000. What changes is the expected depreciation? In that case, depreciation is the difference between the car’s Value and the residual value.
It’s always best to have a higher residual value on a lease and lower depreciation. You would save substantial amounts of money with less depreciation. You will save lots of money after the money factor is applied.
3. Down Payment
Putting down money on a car lease isn’t compulsory for most lenders and dealerships, especially if your credit is good enough. However, some lenders may require you to deposit substantial money to qualify for the lease.
A typical car lease down payment can range from $0 to $3,000. Putting down a substantial amount of money can result in lower monthly payments. The down payment reduces the vehicle’s expected depreciation and interest.
Back to the $45,000 car The monthly payment before interest is $361. If you put down $2,000 on the car lease, you will pay $306 monthly. That’s because the vehicle’s depreciation reduces to $11,000 afternoon the down payment.
4. Estimated Interest Rate
The estimated interest rate or money factor represents the vehicle’s financing charges. Lenders and dealerships represent the money factor in a decimal, such as 0.00167. Multiplying the money factor by 2400 results in the annual percentage rate (APR). Therefore, 0.00167 times 2400 is a 4% annual interest rate.
Lenders determine the money factor by looking at the lessee’s credit score. It’s critical to shop around for different deal offers to see the interest rate you would get due to your credit score. You can then use the offers you got to negotiate the money factor down.
Back to the example concerning the $45,000 car… So far, you have already negotiated it down to $40,000 and made a $2,000 down payment. You get a 0.005 money factor (or 12% interest) from the lender. That’s substantially higher than the 0.00167 money factor (or 4% interest rate).
With the above example, the depreciation value reduces to $11,000 from $13,000 after a $2,000 down payment. Using the 0.00167 money factor, the interest payable after 36 months is $1,320. With the 0.005 money factor, the interest payable after 36 months is $3,960, which is three times higher.
5. The Lease Term
The lease term refers to how long you’ll have and pay for the vehicle. It’s usually presented in terms of months or years. Typical car lease terms range between 24 and 36 months but could be longer.
In most cases, the lease term is the last factor determining monthly payments on a lease. Once aggregating the depreciation, taxes, interest, and fees, you must divide the final figure by the number of months in the lease term.
Based on the example concerning the $45,000 car, the lease cost would have been $13,000 without the $2,000 down payment. But now the vehicle’s cost is $11,000.
Suppose the government in the state where you live charges no interest, and the money factor is 0.00167 on a 36-month lease. Monthly payments will be $11,000 plus $1,320 divided by 36. That would be $342. On a 24-month lease, the monthly payment is $513, which is substantially higher.
6. Lease Fees
Car leases attract several fees, depending on the lender’s requirements. There’s a possibility to negotiate some fees, although others are fixed. Here are the common lease fees:
- Acquisition Fees: The acquisition fee is an administrative cost covering the logistics of assembling the lease. It ranges between $300 and $1,000 and is non-negotiable. However, you may include it in the monthly payments at the risk of paying interest.
- Documentation Fees: The documentation fee is similar to the acquisition fees since the two serve the same purpose. However, documentation fees are negotiable
- Security Deposit: Some lenders may require you to make a security deposit equivalent to one month’s payment. The money is used to offset excessive wear and tear charges and extra mileage.
7. Total Monthly Payment
The total monthly payment results from inputting the vehicle price, residual value, money factor, down payment, estimated sales tax, and the lease term into the lease calculator. It’s what you’ll pay monthly to lease the vehicle. The total monthly payment can be broken down into the following:
- Lease Fees: You’ll pay the lease fee as interest during the lease term. It’s determined by applying the money factor to the vehicle’s expected depreciation. A high money factor leads to substantially more interest.
- Depreciation Fees: The depreciation fee is the total expected depreciation divided by the number of months in the lease term. It represents what you’ll pay monthly as depreciation. How much is a lease on a $45,000 car? From the example above, the depreciation fee is 11,000 divided by 36 or $306.
8. Total Lease Cost
Besides the total monthly payment, the lease calculator displays the total lease cost. You can use this figure to compare several car lease offers. While it’s important, focusing only on the monthly payment might not be helpful.
However, you can easily get a good deal with the total lease cost. Suppose you have two car leases. One has a $2000 down payment and costs $200 monthly. The other has a $3,000 down payment and costs $150.
You’ll save more by taking the second vehicle due to the substantial amount for the down payment. The lease cost for the first vehicle is more than the second by $800. Therefore, comparing the total lease cost for different deals can yield savings.
Benefits of Leasing a Car
Car leasing comes with many benefits to the lessee compared to financing the purchase of a vehicle. Some benefits of leasing a car include making lower monthly payments, changing car models often, servicing the lease for a shorter term, and lower repair and maintenance costs.
You can also choose from a large variety of vehicles. Once you lease a car, you will not worry about reselling it. Who knows? You could purchase the vehicle when the lease expires. The following are the benefits of leasing a vehicle in greater detail:
1. Lower Monthly Payments
Car leasing is substantially more affordable than the outright purchase of a vehicle. When leasing, you only pay for the vehicle’s expected depreciation value. Purchasing a vehicle involves payment of the full value of the vehicle. Even after applying the money factor, monthly lease payments are more affordable.
2. Changing Cars Often
If you like to change vehicles often, leasing is the best option. You can drive a vehicle for 24 or 36 months before returning it. You may pick a newer car with more advanced features from the same dealership or a different one. Thus, you’re able to get to experience the best and latest vehicle technology.
3. Shorter Terms
A typical car lease takes 24 to 36 months. Rarely do car leases last longer than 50 months. But car financing deals can last for longer than 60 Mon to months. Therefore, you get to pay for a car lease over a shorter term.
4. Lower Repair and Maintenance Costs
Leasing lasts for a shorter term, which could coincide with the vehicle’s warranty period. A vehicle with an active warranty cover would not worry you about frequent repairs and maintenance. The warranty takes care of all the maintenance costs.
Besides, you won’t have the vehicle in the long term. You get it on a lease for 24 or 36 months, and before it develops serious mechanical issues, you return it to the dealership. It’s different for a financed car, which you must keep for longer.
5. A Large Variety of Vehicles to Choose From
Leasing is more affordable. Therefore, you have a large variety of vehicles from which you can choose. Even for the more expensive models, the leasing costs are less than the financing costs. Therefore, you have a large variety of vehicles to choose from.
6. No Worries about Reselling the Vehicle
A leased car belongs to the dealership and should be returned at the end of the lease term. Once you return it, the dealership will have to sell it. On the other hand, if you had purchased the vehicle, the only way to get rid of it is to sell it. Getting a customer who can purchase the vehicle at your stated price isn’t easy.
7. You Could Purchase the Vehicle Eventually
Car leasing allows you to purchase the vehicle when the lease term expires. You may agree with the dealership at the beginning of the lease or afterward. Purchasing a leased vehicle only requires you to pay its residual value.
You could even gain equity on the vehicle if the residual value is less than its actual value. Therefore, you can purchase the vehicle and resale it at a higher price.
Demerits of Leasing a Car
Despite having many benefits, leasing a car has several disadvantages. Thus, it could be better for you to purchase a vehicle instead of leasing it. The following are the demerits of car leasing:
1. You Don’t Own the Car
Leasing doesn’t make you the owner of the vehicle. You use the car for a while and return it to the dealership. So, the vehicle belongs to the lender. Despite making the monthly payments faithfully, you cannot keep the vehicle
2. It Might Not Save You Money
Many people opt to lease a car because it costs less than a car loan. They forget that leasing involves paying for a vehicle you can’t own. Therefore, leasing doesn’t save you a dime in the long term. Purchasing is a better option since you eventually become the vehicle’s owner.
3. Leasing Can Be More Complicated
Car leasing is not as straightforward as it seems. It involves complicated procedures and requires you to have good credit. Besides the usual leasing costs, you may also have to pay other fees at the beginning and end of the lease term.
4. Higher Insurance Premiums
Car leasing may involve higher insurance premiums. After all, driving a vehicle you do not own is riskier. Therefore, you should be ready to pay higher premiums on a car lease.
5. Restrictions on Leased Cars
Car leases come with restrictions on the maximum mileage you can cover annually. You agree with the leasing company on the mileage limit at the beginning of the lease. If you exceed the mileage limits, you could pay over-mileage fees.
The Bottom Line
How much is a lease on a $45000 car? That’s a question that doesn’t have a straightforward answer. Car leasing considers many factors, including the price of the vehicle, the residual value, expected depreciation, money factor, and lease term. These factors tend to vary, leading to changes in the lease price.
Frequently Asked Questions (FAQ)
The answer to that isn’t as straightforward as you might expect. Car leasing has many aspects, including the price of the car, the residual value, the money factor, the lease term, and expected depreciation. Variations in any of these factors may cause changes in the lease cost.
You can lease a car by researching the available lease deals. Once you’ve identified a suitable vehicle, you should approach the dealership and sign a lease contract. But before that, try to negotiate the cost of the lease.
Leasing a car is worth it since it enables you to drive a newer vehicle more often. Also, you do not have to worry about expensive repairs and maintenance. You can either return the vehicle or purchase it when the lease term expires.
You can lease a car from any of the dealerships with such arrangements. Evaluate car dealerships based on their pricing and other aspects of the agreement. Thus, comparing two or more lease deals or the best way to do it.