What Are Some Common Leasing Terms?
Common Leasing Terms
Leasing a car can often be confusing. What does residual value mean? What all is included in the cost at lease signing? Understanding the fine print of your lease is an important step before you sign your lease and drive away in the Subaru you’ve been dreaming of. To help you understand these terms a bit better, we have put together a common lease term guide with you in mind.
Residual Value: Residual value is a commonly used term that refers to the amount your Subaru will be worth at the end of your leasing term. For example, a new Outback valued at 26,000 may be worth close to $13,000 at the end of lease, taking into account the depreciation of the vehicle from all the miles you’ve spent on the road with your trustworthy Subaru.
Lease Equity: So, you decide you’re interested in leasing that 2018 Outback. You meet with your guest advocate to discuss the parameters of your lease, and the car is assigned a residual value. You drive off in your shiny new Subaru and after 36 months, you have driven it less than the mileage limit that was agreed upon in your lease. Now you will have what is known as lease equity, which basically means that your vehicle is worth more than the predicted residual value that was assigned at the beginning of your lease. Pretty cool, huh? You are now able to use this cash towards leasing another vehicle at the dealership.
Mileage Limits: The mileage limit on your vehicle is simply the amount of miles you are allowed to drive in the leased vehicle annually. While mileage limits vary by lease, 12,000 is a common mileage limit. Say you want to take your Subaru on plenty of adventures and long drives; in this case, you may want to consider a high mileage limit option. High and low mileage options are available for people who may drive more, or less frequently, but these options will likely have an effect on your Subaru’s residual value at the end of the lease.
Excessive Wear/Use: Your all-wheel drive Subaru was designed for adventure. No matter how diligent you are in taking care of your leased Subaru vehicle, some wear and tear is bound to happen over the course of your lease. However, excessive wear or use will lead to additional charges when the end of your lease approaches. Make sure you take the best possible care of your Subaru in order to avoid additional wear and use charges. For more information, check out Subaru Motors Finance Lease Customer Guide.
Disposition Fee: When the time comes to return the Subaru you’ve come to know and love, you will be subject to what is known as a disposition fee. This fee simply covers the dealership’s cost to recondition the vehicle and prepare it for resale after your lease. The average cost of a disposition fee is usually between $250 and $400. Fortunately, many dealerships will waive the disposition fee if you decide to lease or finance another vehicle through their dealership.
Early Termination: An early termination fee is just as it sounds: a fee for terminating your lease before your lease end date. While early termination fees vary between dealerships, they could add a substantial fee to your lease-end cost. Make sure to contact your originating dealership to discuss early termination.
Acquisition Fee: An acquisition fee covers the cost that is necessary to arrange your lease. While some dealerships require that you pay the acquisition fee up front, many allow you to bundle the fee with your monthly payment.
Capitalized Cost Reduction: A cap cost reduction can be compared to a down payment. The more money you put towards the vehicle initially will help reduce the monthly payments on your new, awesome car. This cost can be calculated by taking the net cap cost and subtracting the vehicle’s residual value.
Making sure you understand leasing terminology is an important step before you sign a lease and drive off the lot in your brand new Subaru. Before signing your lease, make sure you understand all of the terms in the agreement and don’t hesitate to ask your sales advocate to answer any questions you may have. Happy driving!