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How do car companies make money on leases?
I’m looking into leasing a car, and I’m curious about how car companies profit off of leases, since it seems like a risky situation. How do they make money from leasing cars?
Matthew Macgugan · Updated on
Reviewed by Shannon Martin, Licensed Insurance Agent.
This is a good question! Car companies have found ways to make a profit in a lot of different ways, and leases are no exception.
Automakers generate profit when they sell cars to dealers within their network. There isn’t an exact number for how much the manufacturer makes, since distribution and shipping costs can vary. Still, the automaker will generate the same amount of money if the dealer chooses to
sell or lease
the vehicle out.Finance companies actually make more profit from a car lease or sale than the automaker does itself. These banks and companies make a profit by charging acquisition fees at the time the lease is signed, which usually range from $500-$1,000, depending on the company.
It is possible for automakers to profit once the car is returned at the end of the lease. By calculating the vehicle’s residual value at the end of the lease term, the automaker can estimate what the vehicle is worth after added wear and tear and depreciation. The finance company, which tends to operate as a subsidiary of the automaker, can generate profit by selling the vehicle at the end of the lease.
If you’re thinking about leasing a car, it’s good to keep in mind that you will likely need to purchase full coverage for it. To make sure you get the best deal on the coverage you need, check out the
Jerry
app. We’ll get you customized quotes from top insurers in seconds, so that all you need to do is pick the plan that works best for you. And once you pick one, we’ll even help you switch!Hope this helps!
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- Gregory R.
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