WaterDR
Well-Known Member
- Thread starter
- #1
Hey guys, I want to share a few metrics to use to determine if a lease of good or not. Here is a little wisdom I can share. I am not going to address pros or cons as I think everyone already knows that.
-Your payment constituents three factors....depreciation, interest and tax.
- Depreciation. This is the difference between what your CAP price is and the residual and then divide by months (I’ll use 36). Don’t get sucked in to overly high residuals! While that keeps the payment down, they can jack up the lease factor (interest). So, let’s say you are looking at a 50k JT MSRP. The residual is 72%. But the price is discounted by $5000. The residual would be $36,000 and the cap price would be $45,000. That means there is $9k in depreciation. Divide 9k by 36 amd you get $250 per month. The higher the cap or if they add things like warranty, the more the payment goes up. Generally each $1,000 will cost you About $35 per month.
- Interest is the hardest to think about. Always ask for the money factor. It will be something like 0.0018. If you multiply that value by 2400 you get the interest rate. Leases will almost always be higher. 0.0018 equates to 4.32% which is pretty crappy when most of us can get half that.
In order to calculate the monthly interest payment, take the CAP ($45,000 in this case) and add the residual ($36,000) and you get $81,000. Now multiple $81,000 by the lease factor (0.0018) and you get $145 per month.
Add $145 to $250 and you get $395 for a lease payment
- Tax. The last portion of the payment is tax. Every state is different. Some base it on the CAP price and some on the payment
A “decent” lease will be less then 1% of the MSRP. A great lease will be 0.7% of the MSRP.
In the above example if the interest rate were only 2.5% the lease payment would drop to $235 a month on a $50k vehicle. So yes..where they make their money is on the interest rate.
-Your payment constituents three factors....depreciation, interest and tax.
- Depreciation. This is the difference between what your CAP price is and the residual and then divide by months (I’ll use 36). Don’t get sucked in to overly high residuals! While that keeps the payment down, they can jack up the lease factor (interest). So, let’s say you are looking at a 50k JT MSRP. The residual is 72%. But the price is discounted by $5000. The residual would be $36,000 and the cap price would be $45,000. That means there is $9k in depreciation. Divide 9k by 36 amd you get $250 per month. The higher the cap or if they add things like warranty, the more the payment goes up. Generally each $1,000 will cost you About $35 per month.
- Interest is the hardest to think about. Always ask for the money factor. It will be something like 0.0018. If you multiply that value by 2400 you get the interest rate. Leases will almost always be higher. 0.0018 equates to 4.32% which is pretty crappy when most of us can get half that.
In order to calculate the monthly interest payment, take the CAP ($45,000 in this case) and add the residual ($36,000) and you get $81,000. Now multiple $81,000 by the lease factor (0.0018) and you get $145 per month.
Add $145 to $250 and you get $395 for a lease payment
- Tax. The last portion of the payment is tax. Every state is different. Some base it on the CAP price and some on the payment
A “decent” lease will be less then 1% of the MSRP. A great lease will be 0.7% of the MSRP.
In the above example if the interest rate were only 2.5% the lease payment would drop to $235 a month on a $50k vehicle. So yes..where they make their money is on the interest rate.
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