What Is The "Rent Charge" In A Lease Agreement?

Have you decided to lease your next vehicle? If so, it will be to your advantage to negotiate your lease with as much information behind you as possible. One very important term in auto leasing is "rent charge" (also referred to as the "lease charge"). This is the amount of interest you will pay over the term of your lease. Since this is such a major portion of what you will pay on your lease, it just might be a good idea to understand how it is arrived at.

Rent Charge, is the sum of the cap cost and the residual value, multiplied by the money factor (lease factor). Don't confuse the "Lease Charge" with the "Lease Factor".

Rent Charges vary from lease to lease. Be wary if your Rent Charge is low, there may be hidden charges, higher adjusted capitalized cost and higher depreciation charges. A low Rent Charge does not necessarily mean a good lease.

To calculate Rent Charge:

Rent Charge = (Capitalized Cost + Residual Value) x Money Factor

For example, let's assume your capitalized cost is $25,000, your residual value is $11,000, and your money factor is .0025. $25,000 + $11,000= $36,000. Then $36,000 x 0.0025= $90.

To calculate your base monthly payment using the Rent Charge: Add the Rent Charge plus depreciation (the decline in vehicle value over the term of your lease) and state sales tax. Then divide this by the number of months in your lease.

Lease Factor: This is the interest rate used to determine the rent charge of your lease. For more on the "Lease Factor" or "Money Factor", see Help Translating A Money Factor.
Capitalized Cost: This may also be referred to as Gross Capitalized Cost or Cap Cost. The total amount of agreed value of the vehicle plus all other fees a lease is written for.
Residual Value: It is the predicted value of the vehicle at the end of the term of the lease.

Still too much of a hassle? Check out a lease calculator that will do all the work for you. Just don't go lease a car without knowing how leasing works. You will definitely be taken advantage of, like this poor guy.

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