What are the leasing parameters and how do they influence the leasing rate?
Leasing parameters form the backbone of a leasing agreement, detailing the framework within which the lessee agrees to use the asset provided by the lessor:
- Lease Duration: This specifies the length of time the lessee has the right to use the car. Common lease terms range from 24 to 60 months, allowing customers to choose a duration that best fits their needs and financial situation.
- Mileage Limits: These limits cap the number of kilometres the vehicle can be driven annually without incurring extra charges. Normally, the limits the customer can choose are between 10,000 and 30,000km. Exceeding these limits can result in significant additional costs at the end of the lease.
- Down Payment: This is a lump sum payment the customer pays at the beginning of the lease, the height of which can be individually chosen. However, it is advised to never exceed 30% of the car’s total price. It is also possible to lease a car without a down payment, depending on the offer or leasing company in question.
- Residual Value: This is the projected value of the car at the end of the lease. The residual value is fixed in the contract. gowago.ch calculates the residual value of cars with an in-house developed artificial intelligence, which in addition to mileage and duration takes hundreds of other parameters into consideration.
- Interest Rate: This is the annual rate charged for financing the lease by the bank. Generally, this cannot be changed by the customer and is fixed by the bank.
- Monthly Leasing Rate: This is determined by the aforementioned factors. Customers can configure down payment, mileage, and duration in order to find a monthly rate that suits their needs and budget.
Why do the leasing parameters influence the monthly leasing rate?
All these factors influence the total financing amount, e.g. the money that is effectively borrowed from the bank in order to use the car.
The total financing amount is calculated by subtracting the residual value and down payment from the total price of the car.
The residual value is determined, among other factors, by the duration of the lease and the mileage limit:
- The longer the lease, the older the car will be at the end of the contract.
- The higher the mileage limit, the more wear and tear will affect the car’s internals, also lowering the value at the end of the lease.
Once the total financing amount is calculated, the interest rate is applied to it. The resulting sum is divided by the number of months the lease is active for. The conclusion is the monthly leasing rate.