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First off, if you lease you cannot claim any hybrid car deductions or credits when you file your taxes. Why? Because you don't own the vehicle, the leasing corporation owns the vehicle. It is important to point that out just so you know of what you might be missing if you lease vs. finance.

With that out in the open, we'll cover leases. Forgive me if I get a little too in-depth about this topic.

From a mathematical standpoint, a lease is like a loan with a balloon payment. The residual value of the vehicle at the end of lease term is the balloon. Leases have lower monthly payments because you aren't amortizing the entire amount of the car over the period of the lease, but you are amortizing a portion of the cost of the vehicle over the lease period. The remaining portion is called the residual value. If it were a purchase loan it would be called the balloon. When you lease at the end of the period you can pay off the residual and keep the car, which is usually a pretty large sum of money, or you can return the vehicle to the dealer. If the vehicle is in good condition and has not gone over the total mileage limit that is part of the lease you can just walk away, or you can get a new car. If you have gone over the mileage limits of the lease, you have to pay for those miles over the allotted amount. Something to think about if you are considering a lease.

Addressing your question directly. Lease payments are determined by the residual value, but really lease payments are the amortization of the amount of the cost of the vehicle that is not part of the residual value. So, if the term is fixed at a particular lengthy, say 36 months. The higher the residual value the lower your monthly payment, the lower the residual value the higher the monthly payment. You will have to talk to a dealer about how residual value is calculated, but I suspect that they have a residual value for different lease lengths. Residual value is a number that is figured up front when you sign on the dotted line. It is not something that is negotiated at the end of lease. In the world of financing, everything has to be stated up front, interest rate, term, minimum payment amount, any prepayment penalties, etc.

Does this help. Ask more and I will do my best to answer.
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