Frequently Asked Questions

Am I paying interest as part of my lease payments?

Lease payments include rent charges, which are similar to interest or finance charges on a loan or credit agreement.

How are rent charges calculated?

Rent charges are calculated at the beginning of the lease based on the capitalized cost, the residual value, and the lease term. Most lessors use a money factor to calculate rent charges.

Why doesn't my lease show a lease rate or interest rate?

There is no federal requirement for lessors to disclose a lease rate or to show the rent charge as a percentage rate. There is also no mandatory federal formula for calculating a lease rate. Standardizing the lease rate calculation would be extremely complex. It would also involve use of certain estimates that can vary among lessors. Because of certain limitations, a lease rate is not a reliable measure of the total lease cost.

The lease agreement will disclose the dollar amount of the rent charge--an amount included in your base monthly payment in addition to the depreciation and any amortized amounts. This charge is similar to interest or the finance charge on a loan.

Why do leases have mileage limitations and purchases do not?

Leases include a mileage limit because the residual value is based on the expected mileage. Driving more miles often reduces the value of the vehicle. Generally, excess mileage charges are the way lessors recover the expected decrease in value from the additional use. When you purchase a vehicle, if you drive more miles than you expect, you will not owe an excess mileage charge, but the vehicle will probably be worth less when you trade or sell it.

What is the mileage I may drive?

Most leases limit the number of miles you may drive before you are charged for additional mileage (often an average of 12,000 or 15,000 miles per year). The mileage allowed in your lease are stated in the lease agreement.