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Dear Driving for Dollars,

I’m considering leasing my next car. I’ve never leased a car before and I saw that with some cars, there is an incentive for leasing a particular model. I don’t understand much about the terminology used. What are the different lease incentives and how do I figure out which one is best?

— Perry

Dear Perry,

Incentives for auto leases are a bit different from the incentives, also known as rebates, offered when you buy a new car.

Incentive No. 1: Cash rebate

First, the cash rebate that is offered when you buy a new car can sometimes be applied to a lease. This rebate is set by the manufacturer and is for a flat amount. Any restrictions on it are spelled out on the automaker’s website, usually in the fine print under the offers section.

Incentive No. 2: Subsidized interest rate

A second type of incentive is what is typically promoted in advertising as a “lease deal” for a specific monthly payment. This is actually a subsidized interest rate, where the auto manufacturer offers a lower rate for customers with good credit if they use the automaker’s lending arm, such as Ford Credit or Toyota Financial Services.

You’ll need to compare this interest rate with financing you obtain on your own through another lender in order to see which is better. You’ll need to make sure that you are comparing all the specifics of the lease terms to ensure an accurate comparison.

Incentive No. 3: Subsidized residual value

That brings me to the third type of incentive: a subsidized residual value.

“This is the percentage of how much the manufacturer wants to set the car’s depreciation at. In other words, the higher the residual value, the lower your monthly payments,” explains Scot Hall, executive vice president of SwapALease.com.

Usually an automaker will offer a subsidized interest rate or a subsidized residual value on a car, but not both. And often, the details aren’t very obvious so you may have to ask.

Leasing is a great option for some people, but it’s not for everyone. Before you move forward with an auto lease, read 5 dumb car-leasing mistakes to avoid.

RATE SEARCH: Don’t want to lease? Check interest rates now at Bankrate to get the best rates on car loans.

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