Tips on Buying Cars: CAR CREDIT / CAR LEASIGN INTEREST RATES, leasing a car, annual percentage rate

Question
QUESTION: Hello Jeff,
I´m from Mexico and I'm making an analysis. I need to know what is the typical car leasing interest rate applicable in USA and Brazil?  I want to make a cost comparison between the two. Also what are the typical cost components when leasing a car? could you help me on that?

best regards

regards

regards

ANSWER: Difficult question.  In the U.S., all loans (and leases are considered a form of a loan) must state the Annual Percentage Rate, or APR.  If an accurate APR can't be stated, then they can't list it at all.  As no one has been able to figure out how to translate a lease rate into an APR, no stated rate exists.  They are required to list what's known as the "rent charge," which is the total dollar amount of financing cost associated with the lease.  All computer software for leasing has a rate built in for calculation purposes, but it varies greatly from one bank or finance company to the next.  I wish I could help you here further, but I can't.

As for the lease components, that's much easier.  First, a percentage is applied to the price of the car to determine the value at the end of the lease.  The remaining amount is depreciation; to that they add the rent charge, divide it by the number of months in the lease to achieve the monthly payment.  For example, let's say a car costs $32,000, it's residual value percentage is 62% after 3 years, and the rent charge over the 36 months is $4500.

$32,000.00 price of car
    X .62
$19,840.00 residual value

$32,000.00
-19,840.00 residual value
$12,160.00 depreciation

$12,160.00
 4,500.00 rent charge
$16,660.00

$16,660.00
divided by
36 months=

$462.77 monthly lease payment

I hope this helps; if not, please don't hesitate to ask a follow-up question.

---------- FOLLOW-UP ----------

QUESTION: Jeff,

Would you have the typical rent charge, maybe a range?

thanks again

Answer
Unfortunately, no such thing.  It would depend on the price of the car, the "hidden" rate that the bank or finance company is using, and the term of the lease.  Manufacturers will often have "promotional" rates (for models they're trying to move off the lots) that are at or near zero percent.