Ok, now let’s talk about Leasing versus Purchasing a vehicle. For the purposes of this sticky I will be using a 2004 Lincoln LS V8.

We will make the following assumptions strictly for calculation purposes. These are general guidelines only since some State Laws affect how the lease is calculated.

MSRP of the vehicle is $45,500.00
Dealer Cost of the vehicle is $40,000.00
There will be a 200.00 fee for the tag
There will be a rate of 7% sales tax calculated
There will be a dealer Document Fee of $349.00
There will be a Lease Acquisition Fee of $595.00
All calculations will be based on a Auto Enhanced Score of 720+
There will be no Security Deposit in the calculations.
The Lease Rate will not be marked up.
The Lease Acquisition Fee will not be marked up.

My general recommendations are as follows, you should NOT lease a vehicle for a term exceeding 36 months. You should lease it for the expected annual mileage you will accrue on the vehicle. Terms over 36 months are exceptionally difficult to trade out of and you will most probably have negative equity on a 60 month lease at the 36 month point.

You should also be aware the Lease Acquisition Fees may be marked up by the dealer as a source of additional profit. The lease rate may also be marked up as another source of additional profit, and in most cases the actual rate you will pay is NOT disclosed on the face of the contract, but rather the total RENT CHARGES is disclosed.

First of all let us examine the situation where you have an agreed upon price of $42,000.00 for the vehicle and see the lease terms and money requirements.

Vehicle and Financing Details

2004 (new) LINCOLN LS 4d Sdn V8

Odometer: 10
Selling Price: $42,000.00 MSRP/NADA: $45,500.00
Cap Reduction/Down Payment: $0.00 Trade Equity: $0.00
Annual Mileage: 15,000 Acquisition Fee: $595.00 Tax Rate: 0.07%


Payments
Lease
for $42,595.00
Money Factor: .00229
Residual
Term Payment Pctg Value
36mo $829.04 39% $17,745.00
48mo $715.45 32% $14,560.00
60mo $637.83 26% $11,830.00

This deal would require no downpayment, however lease contracts require certain fees at inception, they would be your first monthly payment, title/registration fees, Document fees. Therefore if you did this deal you would need to write the dealer a check for roughly 1378.00, which consists of the 829.00 payment, 200.00 for the tag, and 349.00 for Document fee. These are inception costs, it is not a downpayment.

However if in the following case you made a downpayment of $1000.00 the following would result.

Vehicle and Financing Details

2004 (new) LINCOLN LS 4d Sdn V8

Odometer: 10
Selling Price: $42,000.00 MSRP/NADA: $45,500.00
Cap Reduction/Down Payment: $1,000.00 Trade Equity: $0.00
Annual Mileage: 15,000 Acquisition Fee: $595.00 Tax Rate: 0.07%


Payments
Lease
for $41,595.00
Money Factor: .00229
Residual
Term Payment Pctg Value
36mo $798.95 39% $17,745.00
48mo $692.31 32% $14,560.00
60mo $618.86 26% $11,830.00

Now in this case you would need to write a check for your downpayment plus the upfront fees which would total approximately 2347.00 which is made up of 1000.00 downpayment plus 798 1st payment, plus 200.00 for tag, and plus 349.00 for Document fee.

Now if you purchased the vehicle in question for $42000.00 and financed it at 60 months at 3.99 with -0- down you would have a payment roughly of 835.91 and 72 months of 710.00. (included tax, tag title doc fee)

If you made a downpayment of 1000.00 on a purchase the result would be 60 months at 817.00 and 72 months at 694.00 (included tax tag title doc fee)

Now you probably have questions, so feel free!!!!!!!!

Please post the residuals and do dealers mark-down to make $.

If you can only post a few please post the highest and lowest, thanks.

I do not understand your question. If you can clarify, I will try to comply.

so if i was trying to choose between leasing or buying using your example, i would choose the buy option easily... you save 20/month on the lease but you have no equity whatsoever in the car... even if you want to get rid of it in 3 years, you will at least be able to get some money back for it where with a lease you have no equity whatsoever...


if anyone disagrees please tell me why

That was one example only using ONE banks set of residuals and money factors. They may vary substantially from bank to bank and it would be wise to compare thoroughly before making a decision.

Different vehicle depreciate in different amounts, so you may not have equity at a 3 yr position in a 60 month retail contract. As usuall YMMV.

Please post the residuals and do dealers mark-down to make $.

If you can only post a few please post the highest and lowest, thanks.

If the residual is 41% (after 36 months) do dealers run the contract at 39% to make some extra money?

Also, I saw the link to ALG, what range of residual would the 5&4 have vs. 2&1.

Thanks

The mark down of the residual has NOTHING WHATSOEVER to do with the dealer's profit. If WILL affect your payment though. A lower residual will equal a slightly higher payment, and the only way I would recommend that is if you intend to purchase the vehicle at lease end.

I have one residual book of 321 pages of VERY FINE PRINT. I have another residual book of 64 pages with ultra fine prine. I have even another with 95 pages of ultra fine print.

Residuals depend on lender and are term make model trim level specific thus the many variations.

Unfortuantely I cannot oblige your request due to the overwhelming nature of the date and the variations inherent in it.

I may be from time to time able to answer VERY SPECIFIC MAKE MODEL TERM TRIM LEVEL reguests for residuals.

And I forgot to say that mileage will also factor into the residual calculations. there are usual seperate residuals based on 10K or 12k or 15k miles annually.

I sure do have questions...

Here' my info...

MSRP of vehicle $43,495.00
Tag fee 23.00 (transfer - Michigan still lets us transfer a plate without paying the difference in fees (legislation to change this is pending).
Sales tax 6%
Document Fee 75.00
Acquisition Fee (not mentioned - have to ask).
Regular FICO 786 - don't know about auto-enhanced (no car loans in current history).
Security deposit (not mentioned).


2004 (new) BMW X3 3.0i automatic

Odometer: 10-15
Selling Price 42,095.00 MSRP 43,495.00
Money factor: .0023
Annual Mileage 15,000
Charge if not purchased $350.00

Term Payment Residual PCT Upfront
24mo 797.54 28,337.00 (67%) 19,963.96
36mo 665.79 24,849.00 (60%) 24,691.44
buy 44,723.20

Oh, by the way - that's one payment (I'm not sure if the one payment is included in the upfront costs (another question).

Normally, I'd buy. I'm considering the 3 year lease.

Leasing would be based on my assumption that I would NOT buy at the end of the lease and that the residual is enough more than the trade-in value to make up the some cost of the "interest" I'm paying. Dealer makes notoriously low trade-in offers.

If I purchased the vehicle at the end of the lease it would be a separate transaction from the dealer as a "Certified BMW" used car with the additional warranty that provides.

I'm still leaning toward buying but would like your opinion on this situation. I've never leased before, only heard the horror stories.

What are the other pitfalls of leasing (condition of vehicle) to watch out for?

The first thing you do, in order to determine what is the best situation for you is to run an ammortization schedule for the purchase option.

I would need to know the payoff amount at the end of 24 months
And also the payoff amount at the end of 36 months.

Get back to me and we will examine the situation.

Just FYI, taking the money factor and multiplying by 2400 would give you a fairly good est. of the % rate, example: .0031x2400=7.44%.....

You should read your lease contract very closely especially with a non-captive finance entity.

Oops, the money factor was .0023. (I corrected the original message)

I am reading the contract - I managed to get a blank copy to review.

The lease would be with BMW Financial Services. captive or non-captive?

captive

Purchase is not financed. Currently earning .85% in money-market checking account. I would figure 3% return on cash difference between lease amount and purchase amount.

Then you have my apologies for assuming if you did not lease you would finance the purchase.

If I were in a position to pay cash for any vehicle and the opportunity was available to take advantage of a mfg captive lease offer of short term (2-3 yrs), then I would lease the vehicle. (my personal opinion only)

IMO leasing is always the best way to buy a car UNLESS you put 50k miles a year on one or are gonna keep it 10 yrs. What most people dont think about is a car is a DEPRECIATING asset that means its gonna lose money in a lease you dont care you pay for what you use. In short if your gonna trade every 3-4 yrs you need to lease, so you dont worry about trade-in values thats someones elses problem.

Marv or F&I guy—I am thinking of leasing or purchasing an Infiniti FX35. An Infiniti dealer website has a piece under their "Financing" link that basically explains why leasing is a great route to go with. They basically say one should purchase appreciating assets and lease depreciating assets. Kinda makes sense. I was wondering if you could take a look at the article and post your opinion. Unlike what I've read, they claim it is easier to get approved for a lease than to fully finance a car. You can find the article/FAQs at http://www.grubbsinfiniti.com/en_US/HomePage_1.chtml.

Also, I read your sticky on Lease vs. Purchase and I am curious how dealers/lending institutions come up with those "really great lease specials." For instance, in your example you have posted numbers for a car priced at $42,000. At 48 months, the payments would be $692.31 based on $1,000 down and other usual charges.

In my case, an Infiniti FX35 will likely run around $42,000-$43,000 if I negotiate well. This excludes taxes, reg, etc. However, several dealers offer a special on this vehicle for $459, $1000 down, 42 months. I believe the MSRP they were basing it on was just over $43,000. You do need a 730+ score to qualify, however. How are they able to offer this deal when selling price and downpayment are similar to your example, yet the monthly payments are over $250 apart.

I guess what I am getting at is this: how do I walk into a dealership and negotiate a lease with a monthly payment of $550 or less for this vehicle at a selling price of about $42,000-$43,000? Is this something that's going to be purely FICO-driven. This would be my first lease, ever. I want to be as informed and as cautious as I can be. Also, is it terribly sinful to do a 42 month lease (I know you don't reccommend more than 36 months). I just want to try and keep the payments as close to my budget as I can.

Camilo:

You are making a typical consumer mistake in comparing like prices and expecting the result to be similar payments, or wondering why a particular example is so different from an advertised special.

For the sake of argument, let us assume there is no trade vehicle in order to help you understand.

Leasing a vehicle is merely an alternative method of paying for what you drive. It may be suitable for some and not so suitable for others.
I still recommend only terms not to exceed 36 months with the mileage you actually expect to drive written into the contract.

So let’s say you want to purchase a $22,000.00 MSRP vehicle.
You successfully negotiate your price on the vehicle to a $20,000.00 figure and all parties are happy with the PRICE.

Now let’s say the credit is in the A++++ BEST category for the sake of argument.

Bank A offers a lease program on the vehicle with a 50% residual (MSRP x 50% = $11,000.00)
You have agreed to pay $20,000.00 for this vehicle and with a residual value of $11,000.00 you are in essence paying in ultra simplistic terms $9,000.00 for the 36 month use of the vehicle.

$20,000.00 purchase price +
$11,000.00 residual value -
_________
$9,000.00 Basically what your payments are calculated on (in simplistic terms)

Bank B offers a lease program on the vehicle with a 70% residual (MSRP x 70% = $15,400.00)
You have agreed to pay $20,000.00 for this vehicle and with a residual value of $15,400.00 you are in essence paying in ultra simplistic terms $4,600.00 for the 36 month use of the vehicle.

$20,000.00 purchase price +
$15,400.00 residual value -
_________
$4,600.00 Basically what your payments are calculated on (in simplistic terms)

The residual % will have a significant impact on the payment.
Higher residuals will always make for a lower payment.

Now let me stop here, cause I am hoping I have not confused you at this point. This perhaps explains why my EXAMPLE is substantially different from what you are reading at the website article (which by the way I cannot link to). If you want/need any further clarification or if I have confused you, please post back and we will discuss further.

thank you so very much, MarvBear. After seeing your name scattered all over the place, I'm almost hesitant to ask you anything as I am sure you get bombarded on a daily basis.

I have a grasp on the residual portion of the equation and how it affects the payment. In essence, the deal I referred to in my original post works out to a lower payment because somehow the bank offered a higher residual on the car as oppposed to your example's residual of 32% for 48 months. Or at least, this is one of the reasons why it lowers the payment, as I understand it now.

So I guess the question at this point is this: Where can I get information on negotiating a great lease? Or, are leases pretty much a pre-determined thing? For instance, I checked with Lynn's Infiniti in NJ to get more details on the $459 lease special. Unfortunately, it expired on 4/30. Is a dealer still able to construct a similar deal for me if I were to walk in next week? Or is this something that's pretty much controlled by the bank?

I just don't want to walk in there and feel like I'm fresh bait. I'd like to get as informed as I can be about the lease process so that I can walk away with the best possible deal. I am leasing because for the next year or two, while I'm still living in NY, I won't even put 10,000/yr on the car and would benefit from saving a little bit on monthly payments. But when I move to North Carolina, I may exercise my Buy Option if I really love the car (I've coveted it now for about a year).

By the way, the article on leasing is posted on www.grubbsinfiniti.com. You can click on the "Finance" tab and it will be displayed. You are obviously very knowledgeable and folks around this forum seem to respect you. I'm wondering if you agree with the article/FAQs on that page.

Thanks again for your time and help,
Camilo

Camilo:

Now that you got the residual portion of the equation down and understand how that may effect a payment, let’s talk about a few other things.

First of all, I did visit the website you mentioned, and it appears to have made a believer out of you. There is just enough truth regarding leasing to make you want to lease, and while I find nothing specifically or pointedly wrong with their explanation, you must admit that a certain “style” is apparent.

The 3 main things that affect your monthly lease payment are as follows:

The Negotiated Price
The Residual Value
The Money Factor

Lease money factor are as changeable as retail APR’s, so yes, they do fluctuate, but usually not drastically.

Residual values are usually issued every two months or on a quarterly basis, and as the current model year approaches the NEW MODEL YEAR they decline in value.

What I would do, is compare the lease offer to a purchase offer in order to make myself feel more comfortable. So let us say you did a 36 month lease and the residual figure was XYZ. At the end of the lease term if you purchase the vehicle you will likely have a disposition fee of approximately $300.00 more or less plus any applicable state sales tax due. What ever that figure would be is important, because if you financed the vehicle for 72 months you would need to run an amortization schedule and compare your estimated payoff at the 36 month mark and see what the difference is.

Leasing does have its advantages if approached properly. And for what is worth a 36 month lease is tantamount to a 72+month buy depending on the residual value.

Usually when the captive finance source makes such amazing offers they are in effect subsidizing the manufacturer in order to sell more vehicles. They do this by lowering their standard rates to qualified customers and raising the residuals. That two-fold combination will make for a very attractive payment, especially if you take the low mileage options currently available. A low mileage option can usually increase the residual percentage from 2-3% dependent on the term of the lease. I am not advising you do this, only mentioning it to make you aware of it.

Please let me know if this helps.

EXACTLY!! :thumbsup:

Thank you Marv. This is starting to make better sense. I have been reading up on some other available articles regarding leasing, and how different leases are structure—whether subsidized by the manufacturer or configured by dealer or 3rd party lending sources.

I bought my first car ever in 1998, and just paid it off recently. I've always been inclined to finance and "own" rather than lease. I also figured having an auto loan under belt would boost my ability to finance at better interest rates in the future if I took care of my credit. Now, however, I'm realizing that even if I do keep a car for five years, I'm still itching to buy the next once I close the loan. Meaning, I am always going to have to factor a car payment into my monthly expenses.

This being the case, leasing is becoming more attractive because if I am going to pay for a new car, every month - whether it's every 3 years or 5 years - it would make sense to take advantage of the lower lease payments, lower initial-out-of-pocket costs and simply drive something different/new every 36 months.

That is essentially true, However if you plan on getting the itch at the 3 year mark, you would be well advised to limit your lease term to 3 years or you will pay substantial penalties for early termination making if next to impossible to trade. Remember for leases 3 year term max.

thank you so much Marv. I'm still dealing with my Providian mess so until it clears, my highest score sits at 632. I will be going to Infiniti and Toyota dealers this weekend to test drive (FX35 or 4Runner).

I'm basically going to try and find out what scores will get me approved and if they will accept me under my 2 year old CCCS agreement. If CCCS is a problem, and you have suggested it might be, I will terminate the CCCS.

No need to apologize. Any Idea what % of new car customers don't finance?



Does a dealer receive any "hidden" incentive from selling a captive lease over a cash sale? I get the feeling the dealer would prefer I lease instead of purchase. In other words, disregarding the "end of lease" transaction, does leasing offer a financial advantage to the dealer?

Nope, there are no hidden incentives. Depending on the leasing company you may not be able to get your payoff except thru the dealer though.

Dealer can/do mark lease payoff's up.

Marv,

In general, what approximately would be an average 'Money Factor'? for someone with poor, fair, and good credit?

an example for a purchase interest rates would be approximately: 2.9% is good, 9.9% is fair, and 19% is poor.


Also, are there leasing companies that will lease you a car regardless of the make/model? for example, if I lease a honda, am I required to lease it through honda?


Thanks, the primer really helps

There is no average money factor. I have seen rates as low as .00010 and as high as .000650 dependendent upon the particular vehicle make model and leasing company.

There are many companies that will lease any make model. You can even lease used vehicles.

What then determines the money factor?

am I misunderstanding what the money factor is? I'm thinking that it is similar to the interest rate on a purchase...

The money factor is determined by creditworthiness, vehicle make, model, lender, term, and dealer, just like the apr may also vary by these factors.