Leasing a car in the U.S.

[GrimReaper]

Hi,
I know this may not be completely specific to the U.S. but since its where I'm planning on leasing the car, some more specific details would be vastly appreciated.

Ok as a backstory, I'm currently studying for my undergrad in Boston and wanted to lease a car maybe 8-10 months later. I really wanted to go the leasing way since that doesn't make me worry about maintenance and reselling etc. once I finish my studies and go back home.

I'm new to the leasing thing and have absolutely no clue as to what it all is. In India, we always have either outright or loan basis neither of which work out for me here. We don't have a leasing system whatsoever.

So please if you could help me and explain atleast the basic of terms such as whether my deposit I place would be applied towards monthly payments or is the deposit a completely system entity of payment? Also, I've heard of something like leasing index or something, if someone could help me out that would be great!

P.S. I'm probably either heading towards the C350 or C63 depends on how much the monthly payments come upto for the 63.

Thanks a lot!!

[Matt530i]

First, let me define some standard terms for you:

MSRP = Manufacturers Suggested Retail Price (the 'sticker' price of the car)
Selling Price = the negotiatied selling price of the car
Residual Value = the price to purchase the car at the end of the lease
Money factor = monthly interest rate charged

In general, the residual value is set by the leasing company as a percentage of the MSRP. It represents how much they think the car is going to be worth at the end of the leasing period.

You pay for the difference between the selling price of the car and the residual value.

Example, let's say the MSRP of the C350 is $37,000. The residual value of the car might be something like $22,000. Let's say you negotiate with the dealer and agree on the selling price of the car to be $35,000. You end up paying for $13,000 of the car over the lease period. At the end of the lease you will have the option to buy it for $22,000.

In addition to paying $13,000 for the car, you also have to pay interest on the residual value each month. When determining the monthly payment, any amount you put down will reduce the amount you finance.

Example, if you put $3,000 down, you finance $10,000. This amount gets converted to a normal loan payment using the money factor.

Say the money factor is 0.01, then the monthly payment on $10,000 is around $330. Add to that interest on the residual factor, which is $220 (0.01 * 22000) and your total payment will be around $550.

You also have to maintain insurance on the car and have to make a security deposit. There are also limits on how much you can drive the car (usually something like 15,000 miles per year) and if exceed this amount you pay a penalty per mile at the end of the lease (usually a number of cents per mile).