Q1. Am I paying interest as part of my lease payment?
A. No, but leases do include rent charges, which are similar to interest or finance charges on a loan or credit agreement.
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Q2. How are rent charges calculated?
A. Rent charges are calculated at the beginning of the lease based on the adjusted capitalized cost, residual value and term. Most lessors use a "money factor" to calculate the rent charges by applying it to the sum of the adjusted capitalized cost and residual value.
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Q3. Why doesn't my lease show a lease or interest rate?
A. In leasing, there is no federal requirement for lessors to disclose a lease rate and no federal formula for calculating a lease rate. Standardizing the lease rate calculation would be extremely complex. Because a lease rate is not a reliable measure of the total lease cost, federal regulators have decided not to require a rate disclosure since it could mislead consumers.

The lease agreement will disclose the rent charge—an amount charged in addition to the depreciation and any other amortized amounts as part of your base monthly payment. This charge is similar to interest or the finance charge on a loan.
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Q4. Why do leases have mileage limitations and purchases do not?
A. Vehicle leases include a mileage limit because the residual value is based on the expected mileage. You have a right to return the vehicle at lease end without responsibility for the actual vehicle value. This is one of the principal advantages of leasing. There is no similar guarantee when purchasing a vehicle. Driving more miles reduces the value of the vehicle. Excess mileage charges are the way lessors recover the decrease in value from the additional use. When you purchase a vehicle, if you drive more miles than you expect, there is no excess mileage charge owed to the creditor. However, the vehicle will be worth less when you trade or sell it so the used car market imposes an "excess mileage charge" through the reduced vehicle sale price. Even if you keep the vehicle, the vehicle value has been reduced by the extra mileage. The extra mileage is reflected not only in a reduced vehicle value, but also in the likelihood of higher future maintenance costs.
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Q5. What is the mileage I can drive?
A. Closed-end leases limit the number of miles you can drive before you are charged for additional mileage (often an average of 12,000 or 15,000 miles per year). The miles included in your lease are stated in the lease agreement. Some lessors offer lower mileage leases (e.g., 10,000 miles per year). However, most consumers drive 12,500 - 15,000 miles per year. Selecting a lease with lower mileage than you expect to drive will usually subject you to excess mileage charges if you return the vehicle. It is best to match your contract to your actual anticipated driving.
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Q6. Can I purchase additional mileage if I intend to drive more?
A. Yes, when negotiating your lease, you generally can request a higher (or a lower) mileage limit. In the case of a higher mileage limit, the residual value will be reduced to reflect the higher mileage and resulting greater depreciation, which results in a higher monthly payment. It often costs less for you to request a higher mileage limit during the lease (that increases your monthly payment) than to pay for excess miles at the end. Increasing your mileage limit and your monthly payment can reduce or eliminate large end-of-term excess mileage charges. It also will reduce the total rent charge since the average lease balance is reduced.
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Q7. If I don't use all of my allowed mileage, do I get a refund for the unused portion?
A. If you purchase more than 15,000 miles per year, some lessors will refund unused miles. However, there is no refund for unused miles unless it is stated in your lease.
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Q8. How do I decide if I should pay a capitalized cost reduction (down payment)?
A. A capitalized cost reduction is the sum of any cash down payment, trade-in allowance or manufacturer or dealer rebate in your lease. The advantage of paying a capitalized cost reduction is that you reduce your monthly payment in two ways. First, it reduces the amount of "Depreciation and Any Amortized Amounts" shown on your lease agreement that you pay as part of your monthly payment. Second, it reduces the total rent charges by reducing the beginning lease balance (the adjusted capitalized cost), thereby reducing the average lease balance over the term. However, once you have paid a capitalized cost reduction, the money is not "refundable" and so will not be available for other financial needs that you may have during the lease.
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Q9. What does it mean to be "upside down" in my vehicle or to have "negative equity"?
A."Upside down" is an industry term that means your early termination payoff to the lender or lessor is more than the market or trade-in value of the vehicle. The difference that you are obligated for is called "negative equity." You may either pay the negative equity, or, if the lessor agrees, include all or part of the negative equity as a portion of the growss capitalized cost on new lease transaction.
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Q10. Do rebates and incentives apply to leases?
A. Yes, lease rebates and incentives may be offered by a manufacturer, dealer, lessor, or assignee and may be paid to you separately or credited and applied to your lease agreement.
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Q11. What is an acquisition fee?
A. The acquisition/administrative fee usually covers a variety of administrative and insurance or risk-related costs. These may include the costs of obtaining a credit report, verifying your insurance coverage, checking the accuracy and completeness of the lease documentation, entering the lease in data processing and accounting systems, and purchasing insurance for or reserving funds for residual value losses, gap coverage losses and other lease losses (e.g., some lessee excess wear and tear costs if specified in the lease agreement). It is a charge included in most lease transactions that is either paid up-front or is included in the gross capitalized cost. Without an acquisition fee, lessors have to charge higher rental charges.
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Q12. What is a security deposit?
A. A security deposit is used by the lessor or assignee in the event of default or at the end of the lease to offset any amounts you owe under the lease agreement. Some lessors permit you to pay higher rent charges or a higher acquisition fee rather than a security deposit.
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Q13. Who is responsible for insuring the vehicle?
A. In most leases, you are responsible for purchasing and maintaining vehicle insurance throughout the term of the lease. Your lease agreement will list the insurance requirements. When you sign the lease agreement, you may be required to show proof of insurance coverage before taking delivery, including the insurance company, agent, insurance amounts, coverage dates, and policy number. You are required to maintain this insurance until you return the vehicle to the lessor or purchase it at lease termination.
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Q14. Is the insurance coverage different for a leased vehicle than a purchased vehicle?
A. The type of insurance coverage and the insurance rates are not different for leased or purchased vehicles, except that there may be a small charge for you to request that the lessor be an "additional insured." In this way, your insurance would also cover the lessor. But the lessor may require a higher amount of insurance than you normally carry. For example, the following types of insurance are typically required:

• Collision insurance with a maximum deductible usually of $500 or $1,000;
• Comprehensive fire and theft insurance with a maximum deductible usually of $500 to $1,000; and
• Liability insurance with coverage requirements of $100,000/$300,000/$50,000 ($100,000 of bodily injury insurance for the injuries of one person, up to $300,000 for two or more persons per accident, and up to $50,000 for property damage).

Note: The maximum deductible amounts and the coverage limits are designated in the lease agreement but you can have lower deductibles or buy more liability and collision coverage if you wish.
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Q15. If I lease a used car, does it come with a warranty?
A. It depends. Used cars may continue the manufacturer's warranty from when they were new cars (e.g., if you lease a 2-year-old vehicle that had a 3-year warranty when it was new, you will still have 1 year left on that warranty, assuming any mileage limit on the warranty was not exceeded). Some used cars carry separate warranties from the lessor. Some states may have laws that provide warranty rights.
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Q16. Is there a time period (e.g., 3 days) in which I can cancel my lease agreement?
A. No, generally not. Be certain that you want to lease before you sign the lease contract.
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Q17. Do I get copies of all the papers I sign at the dealership or leasing company?
A. Under federal law, you must receive a copy of your federal lease disclosures. State laws determine whether you get copies of all the other documents that you sign. However, you should ask for copies of these regardless of the state law.
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