Reading the fine print on a lease ad
The big number on a lease ad is true. It is also the least informative number on the page. Below is an ad of the kind that appears everywhere, invented for this article, followed by a translation.
The all-new midsize SUV
$299/mo1
36 months2 · $3,999 due at signing3
$0 security deposit4
Invented for illustration. The numbers are internally consistent, but they are not any real manufacturer’s offer, and real ads word things differently.
The payment for one specific configuration, with a large down payment already applied, before tax. Change the trim, the color package, the down payment or your credit tier and the number changes too.
The term. Thirty-six payments in total, one of which is inside the due-at-signing amount.
This is the line that makes the headline possible. Of the $3,999, $299 is the first payment. The other $3,700 is money paid up front, mostly to lower the amount the payments are calculated on. It’s prepaid lease cost, not savings.
Spread everything across the term to see the real monthly figure:
$14,464 ÷ 36 = $401.78 a month
Nothing refundable is being held. Useful, but a deposit would have come back to you anyway if the car was returned in order; skipping it doesn’t lower the cost of the lease.
The sticker price, which is not necessarily the price the lease is built on. The figure that actually drives the payment is the capitalized cost, which the ad doesn’t show. Ask for it. How the payment is assembled from that figure is covered in how a lease payment is calculated.
Both the $299 and the $3,999 will be higher at the desk. How much depends on your state and the dealer, which is why an ad can’t include them. Ask for the total due at signing with everything in it.
The advertised payment assumes the lessor’s best credit tier. Anyone placed in a different tier is quoted a different rent charge, and so a different payment. The ad never shows the rent charge rate at all; in lease terms it’s the money factor, and the money factor explainer shows how to convert it into something readable.
36 × $299 = $10,764. It leaves out the other $3,700 due at signing, and the fees. The total you’d actually hand over for the lease, before tax, fees and any end charges, is the $14,464 above.
That’s the residual: $22,330 ÷ $38,500 = 58% of MSRP. It’s the lessor’s forecast of the car’s value in three years, and it matters twice: a higher residual lowers the payment, and it is also the price if you want to keep the car. Residual value, explained goes into why.
An allowance of 10,000 miles a year. A driver doing 13,000 a year ends at 39,000 miles, 9,000 over:
Spread over 36 months that adds $62.50 to every one of them. If you drive more, lease with a larger allowance from the start.
A turn-in charge you’ll pay if you give the car back. Known now, billed in three years.
The lessor’s example assumes a selling price. The dealer can charge more (or less), and the payment follows. An ad payment is an example, not a promise.
Only cars already on the lot, and only until the offer ends. The exact trim in the footnote may be the one the lot has least of.
The lines that aren’t there
Fine print is also defined by what it leaves out. This ad says nothing about several things that shape the cost of any lease, and each one is worth a direct question before signing.
The capitalized cost. Already mentioned, but it bears repeating because it is the negotiable number. Two people can sign the same advertised lease on the same day and pay different amounts because one negotiated the price of the car.
An acquisition or bank fee. Many leases carry a fee at the start for setting up the lease. It may be inside the due-at-signing amount, added to it, or folded into the capitalized cost. The ad doesn’t say which, so ask where it went.
Early termination terms. Leaving a lease before month 36 can be expensive, and no ad shows how that is calculated. The contract does.
Gap protection. Whether the lease includes a waiver for the shortfall after a total loss, or whether it would be sold separately, is invisible here.
None of these is a trick. They are simply things an ad has no room for, and the space between the headline and the contract is where your questions belong.
Put back together in plain words: about $402 a month over three years, plus tax and fees, if your credit sits in the top tier, you drive under 10,000 miles a year, and the one trim in the footnote is still on the lot.
Keep reading
Further reading
- Car leasing guide Edmunds
- Financing or leasing a car Federal Trade Commission
- Money factor and how it converts to APR Investopedia