Understand your lease or loan
The worksheet is where deals are won or lost. Here’s what each number means, in plain English, so you can read any quote with confidence.
Selling price vs. MSRP
MSRP is the manufacturer’s suggested retail price. The selling price is what you actually agree to pay for the car, before taxes and fees. Payments, leases and loans all start from the selling price, so make sure it’s written down.
Money factor (leases)
The money factor is the lease’s finance charge, written as a small decimal like .00250. Multiply it by 2,400 to compare it to an APR. A lower money factor means a lower rent charge.
Money factor ↔ APR converter
APR equivalent = money factor × 2,400. Example: .00250 × 2,400 = 6.00%.
Residual (leases)
The residual is what the car is projected to be worth at the end of the lease, usually shown as a percentage of MSRP. You pay for the difference between the selling price and the residual, plus rent charges, taxes and fees. The residual is set by the lender, so it’s usually not negotiable.
APR (loans)
The annual percentage rate is the cost of borrowing. Your rate depends on your credit and the lender’s programs. Even a small rate difference adds up over a long loan, so always ask for the rate in writing.
Term
A longer term lowers the monthly payment but usually costs more in total interest, and you can owe more than the car is worth for longer. Compare the total cost, not just the payment.
Acquisition and dealer/doc fees
Leases usually include a lender acquisition fee. Florida dealers also charge a dealer or documentation fee, and the amount varies by dealership. Ask for every fee itemized in writing before you agree to a number.
Add-ons are optional
GAP coverage, service contracts, and protection packages (tint, coatings, wheel and tire, etc.) are all optional. Some can be worth it depending on your situation — I’ll explain each one honestly — but none should be required to buy the car. Ask for the price of each one separately.
Prepayment and refinancing
Before you sign a loan, ask whether there’s any prepayment penalty. If there isn’t, you can pay it off early or refinance later if rates or your credit improve.
Questions to ask before you sign
- What is the selling price, in writing?
- What is the APR or money factor, and the term?
- For a lease: what is the residual, and how many miles per year are included?
- What is every fee, itemized?
- Which add-ons are on this deal, what does each cost, and can I remove them?
- What is the total amount due at signing?
- Is there a prepayment penalty?
- What is the out-the-door total?
Run your own numbers
Try my lease vs. finance calculator, or send me your worksheet for a free paperwork review. Financing and leasing are subject to credit approval.