Fun with ChatGPT (the 1% and 90% Rules)

Few people really understand how to evaluate a car lease payment. Use our example here or research Edmunds for additional information and leasing guides. Learn what portion of an advertised monthly payment is for the car itself (the depreciation charge), how much is financing interest, and whether you're getting a good deal!

Terms to Know:

• Base Rent (depreciation charge): You must reimburse the leasing company for the car's expected decline in value during your lease term. To increase profits the leasing company may attempt to charge full MSRP or higher and encourage add-on options, thereby increasing this charge.

• Financing Charge: Although you are not borrowing directly, you must reimburse the leasing company for its financing costs related to your car, usually marked up for a profit.

• Residual value: The expected market value of your car at lease end.  It's the amount you'll have to pay to buy the car when your lease ends. This value can be manipulated, and the car's actual value may be lower or higher at lease end.

• Money Factor: Determines your financing charge. It depends on your credit rating and market conditions. The money factor will almost never be included in the advertised lease terms because they often mark up the interest rate for additional profit and don't want to advertise it.

• Borrowing Rate: The interest rate you're getting, converted from the money factor rate.  Even though you're not borrowing directly, you must repay the leasing company for its borrowing costs.  Since they often mark up their costs, your borrowing rate for a lease may be higher than your borrowing rate for a purchase.

• Net capitalized cost: The sales price of the car less rebates, dealer tax credits passed on to you, and down payments. It's the amount that will be financed. By playing with the car's sale price and add-on fees, the dealer can manipulate this amount as well.

• Acquisition Fees: As part of the Due at Signing figure, you'll pay these fees in addition to your first month's lease payment and your down payment. These compensate the leasing company for overhead costs and provide a profit margin. This fee is usually disclosed in the advertised terms.

• Disposal Fees: At lease end, you may pay a disposal fee to compensate the leasing company for reconditioning the car, additional overhead, and profit margin.