carguyrob

The problem is that the buyer paid tax based on the full sticker price when they bought item 1 and then paid tax again on the residual with item 2. Our car tax rates here in Cook County are 7.75%. Take that against a $55K car and then again against the $35K residual and you might not think it is too fair.

One of the many reasons I never lease!

ljbmixer

How is this a problem for the leased portion?

carguyrob

You pay taxes based on total list price of the car upfront (or roll it into the lease payment). Many states just charge you tax based on your payment...essentially meaning you only end up paying tax on the portion that the car depreciates over the term of the lease.

ljbmixer

carguyrob,

I totally get what you're saying and I agree that completely sucks. Didn't realize this varies by state, so you made a good point.

My reply was in regards to psymon_pwnz. How does the residual and negotiation play into why a lease would be bad?

ljbmixer

put my question another way in a very simplified math view.

MSRP: $60,000
Residual: $30,000
Negotiated purchase price: $55,000

If purchase: pay cash $55,000 or finance $55,000 over term
If lease: lease on $25,000 over term, residual is $30,000...

Interest and taxes aside, how does the residual and negotiation differ between purchase or lease?

ljbmixer

Typo...I meant to say negotiated price (not "purchase price").

So: Negotiated price: $55,000

MadMadS4

well theres no excuse for being an idiot and getting swindled by a dealer... but thats an entirely different argument

waveyd

Unfortunately it's not that simple. Looked at from the viewpoint of the leasor or financer, they also have to fund the entire msrp or negotiated price for the term of the lease.

For example on your numbers. The lessor (eg Audi Finance) is out of pocket for $55k's (arguably $60k) worth of car, which it has on it's financial books. That costs money so someone (you) is financing that balance. over time you pay both the $25k depreciation PLUS the interest on the value of the depreciation, PLUS cost of carry on the value of the car.

Not a great explanation, but if you google "lease money factor" or similar there are sites that give a good explanation. Bottom line, there more to it than paying depreciation and interest on the depreciation.

waveyd

Meant to add....

Even if you purchase the car with cash (ie you don't finance it through a loan) you're still locking the "value" of that cash up in the asset of the car. That $55k you dropped could be earning interest (hah! today) so it's an opportunity cost.

So to really compare, you have to take a look at the cost, opportunity cost and financing of everything

ljbmixer

This is what I was trying to get at.