A lease is an agreement between you and a lending institution where you make a monthly payment for use of a vehicle of which the lending institution retains ownership. The lending institution takes responsibility for the purchase of the vehicle, creating an agreement where you retain the right to use it for a specific length of time. Although you are not the actual owner of the vehicle, you are afforded the opportunity to enjoy it for the term of the lease. Frequently, leasing allows you to enjoy a more expensive vehicle for a lower monthly payment than if you were to purchase it. In addition, the hassle of the resale is mitigated, as you simply return the vehicle once the lease expires.

As leasing is technically different than buying or financing, different terminology is used to describe the transaction. The most important concepts are adjusted capitalized cost, residual value, and money factor.

Adjusted capitalized cost is the actual purchase price of the vehicle. This is determined by the vehicle's actual price (capitalized cost) along with any applicable charges and fees (acquisition fees, takes, etc.) minus any cost reductions (down payments, trade-in allowances, and applicable discounts). Residual value represents the expected value of your vehicle to the lease owner at the end of the lease. This value is dependent on several factors, like the depreciation rate of the vehicle, the term of the lease, and the number of miles accounted for in the agreement. Money factor effectively acts as the interest rate and reflects the cost of money borrowed on your behalf at the beginning of your lease.

The day-to-day experience of driving a leased vehicle is virtually the same as a financed one. The only major differences are restrictions on the degree to which your vehicle can be customized, the amount of total mileage you can travel, and the maintenance schedule.

A loan is a specific amount of money that you borrow from a lending institution in order to purchase a vehicle. You then make a commitment to make monthly payments for a specific period of time (called a "term") until the full amount borrowed is repaid.

The amount that you borrow and the remaining balance during the life of the loan are referred to as the principal. The principal can be paid off at any time prior to maturity, but as long as it is outstanding the lending institution can charge a prearranged interest rate that is included in your monthly payment. Until the principal is paid in full, the lending institution retains the title to the vehicle as security on the loan. When the principal is paid, the title is returned to you, and the vehicle is yours.

The greatest advantage of financing over leasing is the freedom to do with the vehicle what you wish. With no restrictions on mileage or customization, you are totally free to add premium audio equipment, customized paint, accessorize the powertrain, and fix (or not fix) any mechanical or body problems you encounter.

Decisions on consumable expenses should be made on actual cost to consume. For an automobile on our Pre-Trade Plan, that cost is:

Our dealership packages new automobiles with content that gives you the best value relationship between selling price and future resale value with no repairs. You can then drive a higher priced vehicle for less cost. This is accomplished through "pre-trade." The vehicle's purchase option price at the end of the two year lease is guaranteed. The higher the resale, the less you pay now. With this type of expense management, we let the financial institutions assume the resale risk. Therefore, you make your vehicle decision based on the lowest actual cost to drive rather than on selling price.