quote:

Originally posted by rtquig:

39 months were not yet up, bring back the car and it can sit in the driveway. They finally saw that they were idiots and said we didn't owe them anything.

I had a similar thing with Hertz on a rental for a business trip.

I paid for a week, but returned the car after five days. They wanted to charge me daily rental times five, which was more money than one week.

I told them to just park it on their lot, I would have somebody come by at the end of the full week to give them the keys. Or, they could let me turn it in right then for the weekly rate, and they would have the car available to generate income for two more days. The light bulb lit up over the counter girl's head.

quote:

Originally posted by Copefree:
The big factors are:

- vehicle price (negotiate as you would with a purchase)

- residual value (very important)

- money factor (aka interest rate)

Don’t put ANYTHING down, if possible.

In short, say the vehicle MSRP is $45,000, the lease price is negotiated to $40,000, and the residual value is 60% of MSRP (36 month lease).

This means the dealer is saying the vehicle will be worth $27,000 at lease-end (60% of MSRP).

40,000 (agreed on price) - 27,000 = 13,000.

This means you’ll be paying 13,000 over the 3 years — so your payment will be $361/mo. + interest and sales tax.

Just to add on to the above example:

Conceptually, the lease basically consists of two loans - (1) a loan for the $13,000 of expected depreciation that is repaid with fixed monthly payments consisting of principal & interest and (2) a term loan for the $27,000 expected residual value which is paid off via interest-only payments during the term + a balloon payment of $27,000 at term end (i.e. via your return of the used car).

If the lessor is charging an annual interest rate of 6%, the total monthly payment will equal approximately $528. That amount consists of the $361 for depreciation ($13K / 36 mos) + $168 for the combined interest on the two underlying loan arrangements (as per above paragraph). The monthly interest can be roughly computed based on the average loan balance over the term X 6% / 12 or (($40K + $27K) / 2) X 6/100 X 1/12 = $167.50.

As others noted, the interest rate is often expressed as a money factor, which is simply a shortcut from the above formula and allows for a quick computation of the monthly interest. For a 6% annual rate, the money factor is 0.0025 as computed by 6 x (1/2 x 1/100 x 1/12) = 6 x (1 / 2400). The purpose of the money factor is that it can quickly be multiplied against the $67,000 sum of the $40,000 selling price and the $27,000 residual value to derive the $168 monthly interest charge. If you can use a financial calculator, you could compute the total payment more precisely ($527.85).

Besides amusing friends at cocktail parties, the above math can be used to determine the effective selling price that is implied by a given lease offer and / or the implied rate used by the lessor. Notwithstanding mileage and other concerns, some lease offers are attractive in comparison to a purchase offer simply because the manufacturer is willing to further subsidize the interest rate in the lease and / or use a high residual value.

I don't think Dave Ramsey is stupid enough to reject all leases. I suspect his concern is more about getting a new car every few years (lease or buy) and / or accepting an advertised lease offer without doing your homework.

If one is shopping for a new vehicle, first strive to estimate a fair purchase price, as well as your realistic borrowing rate and your expected mileage. Then you can compare any lease and purchase offers.

This message has been edited. Last edited by: FHHM213,

^^^ Epic answer.

quote:

Originally posted by Aeteocles:
^^^ Epic answer.

But wrong. The residual value is set by the manufacturers financing company as a percentage depending on the length of the lease and annual mileage and vehicle and trim level, calcultated from MSRP, and it is not negotiable. For example it might look something like this on 12k mile per year lease: 24 months=68% (of MSRP), 36 months=56%, 48 month lease 48%.

Anyways, the OP asked about leasing, not the merits of whether it is right, wrong, he should purchase a new car or 2 year old car instead of leasing or any of that.

quote:

Originally posted by jimmy123x:

quote:

Originally posted by Aeteocles:
^^^ Epic answer.

But wrong. The residual value is set by the manufacturers financing company as a percentage depending on the length of the lease and annual mileage and vehicle and trim level, calcultated from MSRP, and it is not negotiable. For example it might look something like this on 12k mile per year lease: 24 months=68% (of MSRP), 36 months=56%, 48 month lease 48%.

Anyways, the OP asked about leasing, not the merits of whether it is right, wrong, he should purchase a new car or 2 year old car instead of leasing or any of that.

For one, my “epic answer” didn’t address the source of the residual value, I simply continued with another member’s example. I did comment that lessors (ie typically the finance arm of the manufacturer, as you note) can inflate the residual that is built within a given advertised offer. It is less common for them to use that input (vs the money factor or capitalized cost) to implement an incentive but I’ve seen it done. Regardless, one is best served by independently estimating a market residual and money factor in order to determine the real selling price that is implied by the lease offer.

Otherwise, I agree that the OP was asking about leasing as a tool rather than when / how / if to shop for a car. Yet, others had veered off course.

Let me throw this question out there: I typically will hold onto my vehicles until the repair costs outweigh the remaining service life of the vehicle which I have found to be around the 12-15 year mark for me. Based on where I currently live and the relatively mild environmentalconditions, this has worked for me. However, what's the thought process on leasing a vehicle when one lives in a harsh environment (NE US with lots of salt and sand on the roads for months, or wanting to regularly drive on a beach), would it then make more sense to lease, knowing that the longevity of the vehicle is reduced due to those conditions and most likely would not last as long as I would have previously held onto a vehicle?