DEFINITION of 'Subvented Lease'

A type of lease where manufacturers will reduce the cost of the lease through a subsidy, usually through the increase of the residual value or the decrease of the interest rate. These subsidies reduce the monthly payments that the lessee is required to pay over the life of the lease. Auto manufacturers often will offer a subvented lease on vehicle models that are not selling well.

BREAKING DOWN 'Subvented Lease'

For example, imagine that you were going to lease a car that is worth $20,000 and has a residual value of $5,000 after four years. Over the four-year period the car is expected to depreciate by $15,000, which would make your monthly payments $312.50 ($15,000/48) - we assume no cost of borrowing for simplicity sake. The car manufacturer could offer a subvented lease on the car by increasing the residual value to $7,500, which would decrease your monthly payment to $260.42 ($12,500/48).

RELATED TERMS
  1. Walk-Away Lease

    A common type of car lease in which the lessee returns the car ...
  2. Open-End Lease

    A rental agreement that obliges the lessee (the person making ...
  3. Closed-End Lease

    A rental agreement that puts no obligation on the lessee (the ...
  4. Capitalized Lease Method

    An accounting approach that identifies a company's lease obligation ...
  5. Minimum Lease Payments

    The lowest amount that a lessee can expect to make on a lease ...
  6. Bargain Renewal Option

    A clause in a lease agreement that gives the lessee the option ...
Related Articles
  1. Investing

    How Does an Operating Lease Work?

    Operating lease is a term used mostly in accounting to denote a lease that gives the lessee rights to use and operate an asset without ownership.
  2. Personal Finance

    When Is Buying A Car Better Than Leasing?

    People who lease a car are often more concerned with the short-term picture.
  3. Investing

    New Wheels: Lease Or Buy?

    These two major ways to obtain a car have very different advantages and drawbacks. Find out which is best for you.
  4. Managing Wealth

    What is a Capital Lease?

    A lease considered to have the economic characteristics of asset ownership.
  5. Managing Wealth

    Why You Should Buy A Car Instead Of Leasing

    While leasing has certain advantages, buying a car tends to save you money in the long run and offers greater flexibility.
  6. Managing Wealth

    When Is Leasing A Car Your Best Bet?

    Leasing a car isn't right for everyone. But it's attractive for those who want low initial payments and the ability to get a new vehicle every few years.
  7. Retirement

    Retirees: Should You Buy or Lease Your Car?

    To buy or lease – that is the question. For retirees, access to safer cars, comprehensive warranties and tax deductions may drive up leasing's appeal.
  8. Personal Finance

    Is There a Way to Get Out of Your Car Lease Early?

    For those who no longer want their car for whatever reason, transferring the lease to an interested party can be a particularly appealing choice.
  9. Investing

    Explaining Residual Value

    Residual value is a measurement of how much a fixed asset is worth at the end of its lease, or at the end of its useful life.
  10. Managing Wealth

    Your Lease Is Up: When Should You Buy The Car?

    In general, the fact that you know the car is to your benefit. Before deciding, compare the buyback price to what the car would go for on the open market.
RELATED FAQS
  1. What is the importance of residual value in an automobile lease?

    Find out how dealerships assign residual value and why this is an important factor in car leases. Learn about a tactic some ... Read Answer >>
  2. How have low interest rates affected lease rates in the automotive sector?

    Find out how and why lower interest rates for leasing new automobiles have helped spur more consumers to lease cars instead ... Read Answer >>
  3. How is residual value of an asset determined?

    Understand what the residual value of an asset is and how the residual value of an asset is calculated. Learn how residual ... Read Answer >>
  4. Why might a bond agreement limit the amount of assets that the firm can lease?

    Bond covenants can limit the amount of leases a company can have because leasing contracts are a form of debt. Taking on ... Read Answer >>
  5. How is residual value of assets taxed?

    Find out how and when taxes are assessed on the different kinds of residual value, including the residual value on a leased ... Read Answer >>
  6. You are currently reviewing the following information for JKL Corp ...

    Free info on financial certification exams including study guides, exam questions, and much more! Read Answer >>
Trading Center