Anthony C.

On page 4 of this message board there is a posting by "Jim" about leases and he has the following numbers:

Original Price: $32,898
Residual: 22,475
Length: 48 Month
Mileage 15K
Money Rate: .00299
Payment:417.59


All the leases appear to be in this ballpark, however the numbers don't make sense to me as it appears that people are paying a huge premium. What am I missing?

Here are my calculations
Depreciation (amount you are paying for) is Capital cost - residual =
32898-22475 = 10423. 10423 is the amount of money that you have to pay to the leasing company. If you pay 417/month for 48 months, that comes to $20016. For a money rate of .00299 that is supposed to be an APR of 7.17% (money rate*24). Running this through my loan calculator, for a loan amount of 10423 and interest rate of 7.17 for 48 months, you should have a monthly payment of 250.41 and a total cost of 12019.

A "downpayment" should reduce the payment even further. I must be misunderstanding something. Is the resdiual actually more like 15K rather than 22K? If the residual is much lower then I can believe those numbers.

Chad D

The residual should be 70% of sticker; also make sure you pay interest on the residual.

John TT

You borrow the full $33k, pay interest on the full amount and pay the principal down to the residual by lease end. Your bullet payment is = to residual at lease end. If you turn the car in, think of it as if the leasing company pays you the residual which you then use to satisfy the bullet repayment.

With lease rates this low, its a very attractive financing tool since borrowing $33k at 7.2% is damn cheap - probably very comparable to most people's after tax costs on a home equity line. Plus, the value of your car is GUARANTEED at lease end.

Damian

There is also says tax/registration comes to about $4k on top of price

Damian

Make that sales tax (don't think you get taxed for saying stuff, yet....)

John TT

The sales tax should only be on the difference between the capitalized cost and the residual

Damian

Gross Cap Cost: 36,399
Cap Cost Reduction: 1,707
Adjusted Cap Cost: 34,691
Residual Value: 23,188
Depreciation: 11,502
Rent Charge (which is where they get ya i think): 11,391
Total Base (dep + rent): 22,893
Lease: 476
Monthly Sales/Use/Rental: 40
Total Monthly: 517.49

I only have a brief credit history in the US so I had a bit of trouble getting a lease at all, but this is what I got.

Damian

John TT

You did a 48 month lease, right. I took the liberty of assuming a 6% state sales tax rate. I came up with an interest rate of 10.5%. The "rent charge" is basically the sum of all of the interest payments.

Hey, granted the interest rate environment was different in 1989, but when I bought my 1st car (no cosigner), I paid something like 14.2% on 60 month loan for a $9,991 Honda Civic.

Make all of your payments on time and you'll be getting offers for $50,000 worth a Visa credit lines a month in the mail in no time!

Damian

State sales tax is 8% (maybe 8.5), good to hear i didn't do too bad and yep 48mths

John TT

about 10.25% then - is that CA sales tax? yikes