To Lease or Not to Lease

Typically, a lease permits the lessee to drive an average of 15,000 miles per year without a mileage penalty. Every mile thereafter is charged to the lessee at a "cents per mile" rate, which should be clearly stated in the lease contract. Always be sure that you know exactly how many free miles are allowed and what the penalty will be for excess mileage.

The open-end lease contract is one in which the customer shares in the resale value of the car at the end of the lease. If the car is worth more than the guaranteed residual, the customer receives the profit. If the car is worth less than the residual, the customer has to come up to the difference. For that reason, one of the primary advantages of the closed-end lease is that the lessee walks away from the car at the end of the lease and is not responsible for making up the difference between the current market value and the projected residual. We advise you to think long and hard before agreeing to an open-end lease. It is a gamble.

Lessee The person (you) who leases the car.

Lessor The leasing company.

Mileage Allowance The number of miles you can drive a leased car per year without penalty.

Money Factor A money factor is simply a number used to determine the fee that a lease company will charge you for "renting" their car.

The lower the money factor, the less of a fee the lessor is taking. One way to make an easy comparison between the money factor charged for a lease and the interest rate that you'd be charged in n purchase finance agreement is to multiply the money factor by 24.
A money factor of .0026 x 24 equals 6.2, which in percent is approximately the equivalent of a 6.2 percent finance interest rate. A money factor of .0065 x 24 would be the approximately equivalent a 15.6 percent interest rate.