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Learn how to calculate a lease...

203K views 141 replies 46 participants last post by  Bowlth 
#1 ·
With so many leasing questions, I thought I would make a seperate post with the lease info from the Car Buying FAQ's. I have also attached my trusty lease calculator for those who still need it.
Calculating a lease payment is not difficult, once you have all the
information you need. The lease payment is based on the difference between
what you pay for the car and what the car will be worth at the end of the
lease, plus interest.

When it comes to leasing, here is the lingo:

Capitalized Cost - This is the selling price of the vehicle.

Capitalized Cost Reduction - This is simply a down payment.

Residual Value - This is what the car will be worth at the end of the lease
(usually stated as a percentage of the MSRP).

Money Factor - This is the interest rate. It is always give as a decimal
figure. While it is not necessary to know the actual percentage rate when
calculating the lease, you can figure it out by multiplying the money factor *
2400. This number is used no matter what the term of the lease. For example, a
money factor of .0025 would be an interest rate of 6%.

Inception Money (or Get In Money) - This is the amount of money that you have
to come up with at the start of the lease (not including any Capitalized Cost
Reduction). The inception money usually consists of the first month's payment,
a security deposit (usually equal to one month's payment rounded to the
nearest $25 and a bank fee. It can also include the dealer documentation fee,
tags and sales tax on the any Capitalized Cost Reduction (more on that later.)
It is important to have all of these costs broken down so you know exactly
what is being covered.

Now, here is how we calculate a lease. First off, you need to have several
things: the MSRP (or sticker price), the selling price (Capitalized Cost), the
residual value (as a percentage) and the money factor.

Let's use the GTI 1.8T as an example. Adding in the 17" wheels, luxury and
leather packages, it will have an MSRP of $22,000. The residual value for a
36-month lease (with 15K miles/year) is 57%. Usually a 12K mile/year lease
will have a residual value 2% higher (or 59% in this case). The money factor
for 36 months is .00250. Now that we have our figures, we can calculate the
lease. This may seem complicated, but take it step by step and it is quite
easy.

First we calculate the lease cost. Take the MSRP ($22,000) and multiply it by
the residual value (59%). This gives us $12,980. Now, take the Capitalized
Cost (what you pay for the car) and subtract the residual value from it. Let's
say we pay $21,500 for this car. $21,500 - $12,980 = $8520. Now, we take that
$8520 and divide it by the lease term of 36 months. $8520 / 36 = $236.67.

If you didn't have to pay any interest, this is what your monthly payment
would be . Unfortunately, few banks lend money without charging interest . To
figure out the monthly interest you take the sales price ($21,500) and add it
to the residual value ($12,980) and multiply it by the money factor (.0025).
$21,500 + $12,980 = $34,480. $34,480 * .0025 = $86.20. So, you are paying
$86.20/month in interest. You add that to the monthly lease cost of $236.67
and you end up with a monthly payment of $322.87. But wait, there's more. Your
state needs to collect their part of the deal in the form of sales tax. If
your sales tax is 8.25%, you would multiply the monthly payment by 1.0825 for
a grand total of $349.51. This is your monthly payment.

Now, what about putting more money down in the form of a capitalized cost
reduction. You would simply deduct this amount from the capitalized cost
before you run the numbers. For example, if you put $1,000 down, your monthly
payment would drop to $316.73. Now you are probably asking yourself, why not
put more money down? First off, you have to pay your 8.25% sales tax on that
$1000. But that is no big deal. The bigger problem is that if the car ever
gets stolen or totaled, the insurance will pay off your lease, but you will
never see that $1,000 again since it was paid up front. Also, think of it this
way. If you were leasing an apartment and the rent was $750/mo, but the
landlord said, "Give me an extra couple of thousand up front and I will lower
the rent to $650/mo." Few of us would actually do that. Leasing your car is
just like renting. If you can't afford the payment without putting more money
down, I would suggest taking the money you would put down and put it in the
bank to earn interest and then deduct an amount every month to cover the
difference.
One more bit of advice. Never lease a car for a longer term than the
manufacturer's warranty. If you do and something breaks past the warranty
period, it will be your responsibility to get it fixed and pay for it
yourself. Since you will give the car back at the end of the lease, you are
basically paying to fix someone else's car. So while generally longer lease
terms will give you lower payments, don't lease past the warranty period.
Also, don't lease longer than you will think you will want your car. Breaking
a lease early can be very expensive.

Updated Lease/Loan/Balloon calculator added (thanks GTakacs).


Modified by VeeDubDriver at 6:02 PM 8-28-2003
 
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#128 ·
I must say this thread is a wealth of information. That said, I am hoping to get some info myself.

Right now, I am looking at picking up the hot, new 2005.5 Audi A4. Equipped as such: 2.0T Q w/6 speed; sport package; prem. pack; light package; prem audio w/XM; cold weather pack; Audi DVD Nav+; Quartz grey w/Ebony interior and power rear and manual side sun shades. The dealer is quoting me $38084 vs. MSRP of $38995. The specs on the Premier Purchase are 39 mos @ 12k a year w/$2000 down + fees. (Oregon does not have any applicable taxes to this deal). Monthly payment is to $488 with A tier credit. Does this compute??
I called the dealer and inquired more and they told me that the rate was 4.6% and a residual of $21447.
Is this deal workable to more favorable numbers even though this model is brand spanking new? I have been wading through the advice in this thread and I want to think I can do better.
I appreciate the help!
Cheers.
 
#135 ·
Re: Learn how to calculate a lease... (VT Passat)

Quote, originally posted by VT Passat »
Why is the residual value added to the sales price to figure the interest?

Because that is what the leasing gods demand!
 
#136 ·
Re: Learn how to calculate a lease... (Tony@GKF)

Quote, originally posted by Tony@GKF »
I apologize for taking this a little OT, but is there a similar post on Vortex or other site concerning financing the purchase of a car

This might help: http://www.edmunds.com/finance...ce..2.*
Otherwise, go ahead and create a new thread and we will see if we can get you questions answered.
 
#137 ·
Re: Learn how to calculate a lease... (VeeDubDriver)

I am thinking of leasing my new TDI but the numbers I'm given by the dealership seem way too high. Here are the the numbers they give me:
Selling Price: 23460
Residual: .58 (13897)
Interest Rate: 3.5%
Georgia Sales Tax: 7%
Lease Term: 36 months, 12K miles
Lease Price: 420
When I calculate it using your formula, I get 342.53.
Am I doing something wrong or getting ripped off?
Thanks.
 
#138 ·
I want to lease a 2.0T A4 Avant. Black/black with prem, navi, lighting, sport, audio. 36 months, 12k miles, 3500 drive offs.. But you guys said I shouldn't put money down.
The dealers gave me these numbers.
Offer1:
MSRP $39,745.00
Invoice $37,563.16
Selling price $38,063.16 ($500 over invoice)
Adjusted residual value $23,052.10
Drive offs $ 3,500.00
Monthly Payment $ 454
Offer 2
OFFER 2:
Selling price $35,498
Money factor: 0.00135
Residual 58%
Monthly $420
OFFER 3: (I originally requested one with just Prem, Navi, Lighting and this is what he quoted me telling me he'd do this if he could find one.. which he couldn't so he later called and offered $426 or something for the same car above)
MSRP is $37995.00
Invoice $34770.16
Cap Cost $35770.00
Out of Pocket $3500.00
Residual 58%
Monthly $410.40
Should I expect better numbers? Since a base 2.0T sedan is going for $299 (but for a 24 month, 10k miles, with 2900 drive offs)


Modified by pickuptyper at 5:17 PM 7-12-2005
 
#139 ·
Re: (VeeDubDriver)

It's true. Especially given the current incentives being offered in North America on new vehicles, it does nothing to help maintain the resale price of a new car.
Therefore, leasing is a great alternative to buying new if you have the cash flow. I'm not sure about the US, but in Canada, if you work for yourself, you can actually write your lease off as a business expense up to $750/month, which makes leasing even more attractive!
 
#140 ·
Re: Learn how to calculate a lease... (CS VW)

OK, so I have a good car('99 Alero) that I want to trade in on a Golf (my virst VW). Right off the bat, lease payments are significantly lower than buying so thats my natural first choice. Driving to and from work (Surprise to Phoenix) would be 12k miles, I may be getting a new job that would add 2200 miles to what I already drive...so by the advice given I should not go with a lease right? Problem is that with a lease I can get a Golf for 220 a month and buying means like 350.
Am I totally screwed here? FWIW, I would be trading in my car which is paid off to cover the initial down, most likely I would keep the vw and not turn it back in. For me the monthly payment is most important..like keeping it under 250 per month.
Not sure what to do...help?

Modified by nymike at 2:02 AM 10-8-2005


Modified by nymike at 2:06 AM 10-8-2005
 
#141 ·
Re: Learn how to calculate a lease... (VeeDubDriver)

Just wanted to say, "Thanks." My folks are looking to lease a CR-V and aren't really ones for reading the fine print, so I feel obliged to help 'em out. Reading this post made me feel prepaired.
I really appreciate the time you took to make that spread sheet.
Cheers!
 
#142 ·
Re: Learn how to calculate a lease... (nymike)

For this example, I would save up and put money down towards financing the vehicle if you really want to own it in the end. However, you could look for a lease transfer where someone has put several thousands down that would reduce the monthly costs of the lease. In addition, the buy-back might be even better than buying used.
Just a thought.
 
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