Matt530i

First, let me define some standard terms for you:

MSRP = Manufacturers Suggested Retail Price (the 'sticker' price of the car)
Selling Price = the negotiatied selling price of the car
Residual Value = the price to purchase the car at the end of the lease
Money factor = monthly interest rate charged

In general, the residual value is set by the leasing company as a percentage of the MSRP. It represents how much they think the car is going to be worth at the end of the leasing period.

You pay for the difference between the selling price of the car and the residual value.

Example, let's say the MSRP of the C350 is $37,000. The residual value of the car might be something like $22,000. Let's say you negotiate with the dealer and agree on the selling price of the car to be $35,000. You end up paying for $13,000 of the car over the lease period. At the end of the lease you will have the option to buy it for $22,000.

In addition to paying $13,000 for the car, you also have to pay interest on the residual value each month. When determining the monthly payment, any amount you put down will reduce the amount you finance.

Example, if you put $3,000 down, you finance $10,000. This amount gets converted to a normal loan payment using the money factor.

Say the money factor is 0.01, then the monthly payment on $10,000 is around $330. Add to that interest on the residual factor, which is $220 (0.01 * 22000) and your total payment will be around $550.

You also have to maintain insurance on the car and have to make a security deposit. There are also limits on how much you can drive the car (usually something like 15,000 miles per year) and if exceed this amount you pay a penalty per mile at the end of the lease (usually a number of cents per mile).