When discussing car leases, the interest rate is actually referred to as the money factor. To work out the interest rate, multiply the money factor by 2,400. For example: A money factor of .00375 multiplied by 2,400, comes to the annual percentage rate of 9 percent, which is fairly typical. Car lease interest rates vary depending on your credit scores, leasing company and the dealer. Someone with a credit score in the low 400s and a spotty employment history, for example, might have to pay an annual percentage rate of 15 percent, while someone with a credit score of 650 or higher and two years at both his current residence and job might pay as low as zero percent interest on his loan.
A Low Rate Is No Guarantee of a Good Deal
You may get a quote for a low rate, or money factor, but that is only part of the process of getting a good deal on your car lease. There are many other important factors such as the negotiated car price and the residual value -- or how much the car will be worth at the end of the lease. A dealer may offer a low rate but charge high fees related to the lease.
How Your FICO And Credit Scores Affect Rates
If you have bad credit, you will be required to pay a higher rate. A credit score of 680 or more will make you eligible for the best deals, known as prime rates. You need to know your credit scores before you attempt to make a deal. You can use an auto lease calculator to find out how much it will actually cost, after you have been given a money factor quote by the dealer. The calculator uses interest rates, though, so remember to multiply the money factor by 2,400 and enter that number.
Other Car Lease Fees
In addition to the APR of the loan, a lease can include several other fees that you should be aware of before you sign any legal documents. These fees can include:
- **Security deposit**. Some lease deals require this, and it will generally be around the same as one monthly payment. The deposit will be returned to you at the end of the lease, with any damage or extra mileage charges deducted.
- **Acquisition/bank fee**. This will probably be included in the cap cost and not listed individually on your contract. The cost is set by the lease company, not the dealer.
- **Disposition fee**. Also set by the lease company, this fee is charged to cover the company's expense of selling your car when it is returned.
- **Sales tax**.
- **Documentation fees**. These are administrative costs charged by the dealer.
How to Get a Better Deal
There is almost always room to negotiate when you are ready to close the deal on a car lease, even if you see or hear things like “nonnegotiable.” The dealer will probably receive between 1 to 6 percent of the final price of the sale in commission, and it will obviously be hesitant to negotiate on that, but you can always try.
Other methods you can use in an attempt to secure a better deal include paying more up front on the down payment or security deposit, or obtaining a prepaid lease -- also known as a single-pay or one-pay lease -- if you can afford it. You can save money on the interest portion with a prepaid lease, but you need to have all of that money available immediately.
No federal regulations require dealers and lease companies to explain how they came up with the rate you will be paying on your car, so as with any other major financial dealings, be constantly on guard. The more information you have, the better will handle yourself in negotiations -- and the more money you will save.