Car lease agreement explained

We all know car leasing is complicated.

This gives the car dealership the upper hand on us. Because when we are confused, most of us do not ask questions. And we just sign the lease contract – even if it is a bad car lease deal.

But:

The good news is I am going to demystify the typical car lease agreement. And I will show you how to protect yourself from getting ripped off at the same time.

Here is a copy of one of my client’s lease agreement:

2018 Hyundai Elantra Sport lease paperwork

He got a FANTASTIC deal.

His monthly payment is WAY less than the 1% rule.

And like all my clients, he got a true sign and drive – $0 cash down.

Of course, my clients always get their new car delivered to their home, work…

Some even at their wedding:

car lease agreement explained wedding delivery

(The dealership even included that cool red bow on top of the car!)

In seconds, I knew he got an excellent deal…

Introducing the 5-second car lease agreement “checker”

I am going to share with you a secret.

In fact, no one in the car selling industry wants you to know this.

Not even “lease hackrs” know about this…

This secret helps us see if a lease agreement is a great deal for us.

It takes just seconds – it lets us see if lease agreement is in our favor in just a glance.

The secret is to zoom to the Rent Charge section:

car lease agreement explained rent charge

The Rent Charge is the interest amount to borrow the money for the lease.

Normally, the Rent Charge is thousands of dollars. It is usually 9.5% to 10.0% of the selling price (cap cost) of the new car.

But in my client’s case, we see the Rent Charge is just $183.25.

Yep…

To get the absolute lowest price on this car, the dealership was willing to slash the interest amount.

This is the 5-second secret:

If the Rent Charge is less than $200, we know the lease agreement works in our favor.

My clients get this all the time. Paying less than $200 for the Rent Charge saves us thousands and thousands of dollars over the term of each car lease.

Here are the most important numbers on a lease agreement

The lease contract is riddled with all sorts of jargon and legalese.

But:

The truth is there are only 4 numbers we need to look at:

The term
This is how many months we are agreeing to lease the car.

Remember, with a true sign and drive, the dealership is paying our first month payment and drive off fees.

So, we are “on the hook” for the term minus one month.

In this case, Justin will owe 35 more payments (on his 36-month lease).

car lease agreement mileage allowance

Residual Value
This is the value of the car at the end of the lease:

car lease agreement residual value

We reference this amount to see if we can easily flip our end-of-lease car for a profit.

Odometer reading (Mileage)
This is more important than people realize…

Because a some unscrupulous car dealers will lease us a program car as if it were a new car.

Technically, cars with thousands of miles on ’em are technically new. (They only lose their new-car status once there is a title transfer.)

For me, any car with more than 500 miles is not a new car.

Monthly payment
Of course, this is the most important number on the lease agreement:

car lease agreement montly payment

In this case, Julian got his brand new 2018 Hyundai Elantra for just $175.56 – $0 cash down.

We know it is a no-money down lease, because the dealership delivered the car to him without the need for any payment.

Less important car lease numbers

There are 2 less-important numbers to look forĀ on our new car’s lease agreement:

1) Mileage allowance – this is how many miles a year we can drive without paying an over-the-limit penalty:

car lease agreement mileage allowance copy

2) Excess mile rate – this is the penalty amount we pay over the mileage allowance… if we turn in the car at the end of the lease (instead of “flipping” it for a profit):

car lease agreement excess mile rate