The first step, if you have a trade, is to establish the value you receive for your used car/trade. The dealer or lessor will appraise your trade and based on mileage, year and condition will calculate a wholesale value not retail price. The wholesale price is determined by cars similar to yours bought at weekly auctions held in your geographic area. These prices are categorized and published in weekly Black Books. Keep in mind that your trade is simply a hunk of metal with a current wholesale value. The appraiser does not take into consideration any sentimental value that you hold for this vehicle.

If your trade is free and clear, no liens, payoffs or encumbrances, then a straight buy "as is" offer will be given to you. If you have a loan balance, then your buy "as is" offer will be deducted from your loan balance. If there is a loan balance due you will have to pay the lending institution to obtain a free and clear title. Example: $10,000 loan balance - $8,000 trade value = $2,000 loan balance due.

The lessor is under no obligation to assume your loan balance. This obligation is entirely your responsibility. The lessor may offer to include the loan balance in the capitalized cost of your lease only if your credit approval amount will support the additional amount. Some dealers will offer to increase your trade value to absorb the loan balance. You may receive a higher price for your trade if you sell it yourself at retail. But this will take time. If your trade is free and clear take all profits and keep them. It is not in your best interest to use as a down payment.

NOTE: Any loan balance due on a trade is going to be paid by you. How and where the dealer hides these dollars will not relieve you of repayment. Your best option is to pay the difference out of pocket and not include it in your new lease because it will increase your payment. Keep all profits if your car is free and clear. Do not use as a down payment. Remember you are leasing to conserve initial cash outlay.

Finance Rate/Lease Charges Or Money Factor

The second transaction is the finance rate/lease charges. Some lessors will quote you a lease finance rate. Using this (%) percentage you can calculate the interest portion of your lease payment. Some lessors will tell you there is no interest rate on a lease but a money factor. Ask how they calculated the money factor. It is a combination of interest rate and the time you use the money. The higher the money factor the higher your monthly lease payment.

NOTE: The lending/funding institution has to make money on each lease. How much is a direct function of how high the interest rate or money factor and the term of the lease.

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