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Re: Learn how to calculate a lease... (VeeDubDriver)

Quote, originally posted by VeeDubDriver »
Now, what about putting more money down in the form of a capitalized cost
reduction. You would simply deduct this amount from the capitalized cost
before you run the numbers. For example, if you put $1,000 down, your monthly
payment would drop to $316.73. Now you are probably asking yourself, why not
put more money down? First off, you have to pay your 8.25% sales tax on that
$1000. But that is no big deal. The bigger problem is that if the car ever
gets stolen or totaled, the insurance will pay off your lease, but you will
never see that $1,000 again since it was paid up front. Also, think of it this
way. If you were leasing an apartment and the rent was $750/mo, but the
landlord said, "Give me an extra couple of thousand up front and I will lower
the rent to $650/mo." Few of us would actually do that. Leasing your car is
just like renting. If you can't afford the payment without putting more money
down, I would suggest taking the money you would put down and put it in the
bank to earn interest and then deduct an amount every month to cover the
difference.
Modified by VeeDubDriver at 6:02 PM 8-28-2003

well, not always.
if you are in a position where you have some comfort that you will be able to save more in the next few years, putting more down now to take advantage of lower monthly payments witha firm intention of purchasing at the lease end (using your increased income to come up with the down payment at that end) can cost about the same in dollars as just purchasing. moreover, with the time-value of the money you save in the meantime (ie: if you acutally invest the $200/month you save in car payments) over, say, a 4-year lease you can come out much ahead.
 

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Re: Learn how to calculate a lease... (backpacker)

Quote, originally posted by backpacker »

well, not always.
if you are in a position where you have some comfort that you will be able to save more in the next few years, putting more down now to take advantage of lower monthly payments witha firm intention of purchasing at the lease end (using your increased income to come up with the down payment at that end) can cost about the same in dollars as just purchasing. moreover, with the time-value of the money you save in the meantime (ie: if you acutally invest the $200/month you save in car payments) over, say, a 4-year lease you can come out much ahead.


I am not sure what you are arguing, is it that it's better to put money down, or are you arguing that it's better to lease and pay off the car at the end of the lese term instead of financing it?
Putting more money down up front only makes sense if you can't earn more return on your money than the money factor/interets rate on the car loan. But with the super low interest rates most manufacturers charge, you'd be crazy to put money down, as well as the GAP situation that has been outlined above. Putting money down on a lease is BAD and should never be done!
Now if you are arguing that it is better to lease a car and buy it at the end for the payoff amount, versus buying it in the first place, you're too late for that party too
. I already covered that angle a long time ago: http://forums.vwvortex.com/zerothread?id=906203
 

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Re: Learn how to calculate a lease... (backpacker)

Quote, originally posted by backpacker »

well, not always.
if you are in a position where you have some comfort that you will be able to save more in the next few years, putting more down now to take advantage of lower monthly payments witha firm intention of purchasing at the lease end (using your increased income to come up with the down payment at that end) can cost about the same in dollars as just purchasing. moreover, with the time-value of the money you save in the meantime (ie: if you acutally invest the $200/month you save in car payments) over, say, a 4-year lease you can come out much ahead.

That statement is speculative and not completely true. You MAY come out ahead if you put more money down, as far as investing-wise. However, his point that your car would be paid off and you would be out that money if it were ever stolen is not satisfied by your statement. If you put more money down, and invested the difference from the lower payment, do you really think you would earn enough interest on that monthly difference in four years to replace the original cap cost reduction you put down when you leased the car, if the car were stolen or totalled? Not quite...
Then there is the question of what is the cost of the lease vs. the ROR on your investment? If your money factor is REALLY low, then it wouldn't make sense at ALL to put extra money on your lease. That would be just throwing away compound interest that you would have had, had you left that money in your investment vehicle.
If your Lease Money Factor is HIGH, then you may consider paying down cap cost so that you are paying less finance charges, but only if your investment vehicle isn't also giving you a hgh ROR. However, that still doesn't preclude the risk of losing all of that if the vehicle is totalled or stolen - your orignal cap investment would be lost when the gap insurance took over (built in to a lot of leases).
Besides, if your intention was to buy in the first place, you most likely wouldn't consider a lease. If you are going to get a lease with a low money factor, then you just as well could probably get a loan with a very low interest rate. Then, you are actually putting your down payment towards something (ownership), and you are saving interest. However, that still doesn't mean having a large down is better, especially with a very low interest rate (like some of the advertised 0% to 3.9% dealer incentive loans). If you have a good investment vehicle, somewhere in the 10%-12% range conservatively, then your interest would compound MUCH faster putting your money in the investment than saving the interest off of such a low interest rate loan... you just have to do the math (or have someone do it for you) before you decide to purchase/lease a vehicle to see what makes the most sense financially, and what your ultimate intentions with the vehicle will be. Hope that helps http://****************.com/smile/emthup.gif



Modified by SN2BDNGRZB55 at 10:10 PM 6-5-2004
 

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Re: Learn how to calculate a lease... (SN2BDNGRZB55)

Quote, originally posted by SN2BDNGRZB55 »

That statement is speculative and not completely true. You MAY come out ahead if you put more money down, as far as investing-wise. However, his point that your car would be paid off and you would be out that money if it were ever stolen is not satisfied by your statement. If you put more money down, and invested the difference from the lower payment, do you really think you would earn enough interest on that monthly difference in four years to replace the original cap cost reduction you put down when you leased the car, if the car were stolen or totalled? Not quite...
Then there is the question of what is the cost of the lease vs. the ROR on your investment? If your money factor is REALLY low, then it wouldn't make sense at ALL to put extra money on your lease. That would be just throwing away compound interest that you would have had, had you left that money in your investment vehicle.
If your Lease Money Factor is HIGH, then you may consider paying down cap cost so that you are paying less finance charges, but only if your investment vehicle isn't also giving you a hgh ROR. However, that still doesn't preclude the risk of losing all of that if the vehicle is totalled or stolen - your orignal cap investment would be lost when the gap insurance took over (built in to a lot of leases).
Besides, if your intention was to buy in the first place, you most likely wouldn't consider a lease. If you are going to get a lease with a low money factor, then you just as well could probably get a loan with a very low interest rate. Then, you are actually putting your down payment towards something (ownership), and you are saving interest. However, that still doesn't mean having a large down is better, especially with a very low interest rate (like some of the advertised 0% to 3.9% dealer incentive loans). If you have a good investment vehicle, somewhere in the 10%-12% range conservatively, then your interest would compound MUCH faster putting your money in the investment than saving the interest off of such a low interest rate loan... you just have to do the math (or have someone do it for you) before you decide to purchase/lease a vehicle to see what makes the most sense financially, and what your ultimate intentions with the vehicle will be. Hope that helps http://****************.com/smile/emthup.gif


Modified by SN2BDNGRZB55 at 10:10 PM 6-5-2004

Ok, here is some math to prove the point.
Assumptions:
- Live in Canada (hence 7% GST)
- Car cost - $55,000
- Down payment to lease or purchase - $12,500
- Using current VW promo rates in Canada (purchase = 3.9%, lease = 2.4)
- Since the aim = keep costs low, go for 60 month purchase and 48 month lease + buyout
- Residual value of car after 48 months = 0.37 (which is not far off the rates VW finance uses on a new passat wagon - low, I know...but it is what they use), or ~ $20,350
Option 1 Purchase:
- you pay $55,000 + sales tax = $58,850
- put down $12,500 you are financing $46,350
- at 3.9% for 60 months, monthly payments = $851.52
- total dollars out of your jeans to buy this car: $63,590 (payments on finance + down)
Option 2 Lease
- $55,000 cost less $12,500 down less residual value of $20,350 = $22,150 to cover in lease payments
- at 2.4, monthly payments (pre-tax) = $524.31
- you pay sales tax on down (= $875) plus on montly payments
- so total monthly payments = $561.01
- total cost of lease to you = $40,303.48
Now you have to buy out on the residual of $20,350
- note VW will charge a $500 purchase fee, so really it is $20,850
Now, if you recall my earlier post, one of the keys for this = idea that your income would increase in the next few years and you could actually save some down payment over the 4 years of your lease (income could also increase from, saying, paying off student loans and being able to hold the savings, etc).
- if your income remains the same, obviously this does not work -
Say you save up another $10,000 over 4 years.
- You have to pay $20,350 + sales tax + $500 fee = $21,774.50
- after $10,000 down, you have $11,774.50 to finance
- to be fair, we assume that you do not get a great rate on the refinanicng and end up paying a whopping 8% (if you get a better rate, this plan works even better)
- now, if you want to keep the "car payment" side of your life about the same, you can finance that over 24 months for monthly payments of $532.53
- Total cost of buyout = $22,780.69
Add that to lease and you get $63,804.17
That is actually $506.78 LESS than purchasing.
Plus, with the ~$190/month lower payments on the lease over the purchase, you could invest it and earn a bit of interest.
If you get "aggressive" on the buyout and finance over 1 year, your monthly payments increase to $1,024.25 for the year, but your cost of buyout drops to $22,209.94
Means your lease+buyout is now $996.52 less than purchasing PLUS, again, the time-value of the money you saved on monthly interest payments.
PLUS on either example, you have actually paid less interest to the bank on lease+buyout.
As I say, in the right circumstances it works.
(lastly, before you object, if you only save another $5,000 to put down over the lease (which is less than $190 per month you save in leasing) and still buyout over 2 years, you still save about $79 PLUS what you have earned on the $5,000 over the 4 years)
Modified by backpacker at 4:22 PM 6-6-2004


Modified by backpacker at 4:25 PM 6-6-2004
 

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Re: Learn how to calculate a lease... (GTakacs)

Quote »
Now let's look at the other scenario when your car gets totaled or stolen after a year. After 1 year that car will worth about $20,000 due to depreciation. If you paid no money down, after the first year your payoff would be about $22100. If you put no money down up front then you insurance will pick up the gap (GAP insurance) between what the car is worth ($20,000) and what you owe ($22,100). So the gap insurance will pay $2100 while the rest will be paid by the regular car insurance. You walk away clear and free and with $3656 left of the $5000 that you put aside (you made 12 payments of $112 from it towards the car)
However if you put down $5000 up fron on this car as a cap reduction by the end of the first year your payoff would be about $18,200. Since the car is worth $20,000 at this point and you owe $18,200 the insurance would pay the lender $18,200 and give you $1800. So you would end up with no car and $1800 in your pocket.
So if you compare the two numbers you can see that if your car is stolen or totaled after 1 year you would be losing over $1850 just because you put money down up front. This number would get smaller as the years go by, but you will be pretty much uspide down throughout the entire lease.

my other post was not geared towards the insurance side of things, but i wonder if you can do two things:
(1) explain where your "pay off" numbers of $22,100 and $18,200 come from.
(2) confirm that, when looking at lease vs. buy, it is something of a moot point b/c even if I purchase and put down $5,000, if the car is only worth $20,000 when it goes I am not going to see the $5k no matter what.
Down payments that disappear due to depreciation will always just do that - disappear, no?
 

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Re: Learn how to calculate a lease... (backpacker)

Backpacker, the whole idea of a down payment in your calculations above is flawed. You could stick that $12,500 or whatever it is into an interest bearing account and as long as the interest you earn on it is higher than the interest/money factor you are paying on the lease/loan you are better off taking little snippets of that money every month to offest the higher monthly payment than paying up front. You seem to know so much about time value of money and rate of retrun, why is this concept so hard to comprehend?

In the calculations that I have posted the payoff amount comes from pretty simple math. With no money down, you would owe $22,100 on that car after 1 year, hence that is the payoff. I have used simple interest calculations to come up with that using the principal balance and 12 consecutive monthly payments. You can do it yourself using excel's PMT function with goal seeker and Future Value. The $18,200 came out using the same calculation with down payment (if I remember corectly, it has been a while).
And if you can't understand GAP coverage and how you win with no money down in the case of an early theft or total loss, I can't really tell you anything other than go back and read my posts again. Putting money down is BAD, and I just don't have the time to write any more about it. At this point you either get it or you don't......
 

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Re: Learn how to calculate a lease... (GTakacs)

Quote, originally posted by GTakacs »
Backpacker, the whole idea of a down payment in your calculations above is flawed. You could stick that $12,500 or whatever it is into an interest bearing account and as long as the interest you earn on it is higher than the interest/money factor you are paying on the lease/loan you are better off taking little snippets of that money every month to offest the higher monthly payment than paying up front. You seem to know so much about time value of money and rate of retrun, why is this concept so hard to comprehend?

In the calculations that I have posted the payoff amount comes from pretty simple math. With no money down, you would owe $22,100 on that car after 1 year, hence that is the payoff. I have used simple interest calculations to come up with that using the principal balance and 12 consecutive monthly payments. You can do it yourself using excel's PMT function with goal seeker and Future Value. The $18,200 came out using the same calculation with down payment (if I remember corectly, it has been a while).
And if you can't understand GAP coverage and how you win with no money down in the case of an early theft or total loss, I can't really tell you anything other than go back and read my posts again. Putting money down is BAD, and I just don't have the time to write any more about it. At this point you either get it or you don't......


well, my point was just if you want to have low payments now and end up in the same place as a purchase, putting $$$ down on a low rate lease can be cheaper than purchasing.
obviously, if your only goal is to lease and not to ultimately own and drive it for years and years, of couse you should not put money down.
my post was geared towards those looking to take advantages of both systems (ie: want to own, want low payments now, is it worse to be in a lease than a purchase? the answer is "not necessarily")
nothing in your recent posts or your earlier ones seem to challenge that - including your comments on insurance. (in both purchasing and leasing you are putting $$$ into an asset that will only ever decline in value, so of course you won't see it again - while comparing "lease with 0 down with no intent to own" and "lease with $$$ down and no intent to own" you are better off...i was looking for how your comments apply to the scenario i was talking about).
...and, of couse, one might also say that leasing in perpetuity is just as silly since there you never end up with a paid-for vehicle but are constantly paying car manufacturers for the privilege of letting you drive.
 

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Re: Learn how to calculate a lease... (backpacker)

Quote, originally posted by backpacker »

well, my point was just if you want to have low payments now and end up in the same place as a purchase, putting $$$ down on a low rate lease can be cheaper than purchasing.

The only reason it will be cheaper is because of the low money factor on a lease, and the time value of money that you can invest that is the difference between the lease payment and the finance payment. It has NOTHING to do with your down payment. I still stick to my statement that your downpayment money would be excrecised a lot better somewhere else given the current super low money factors and interest rates on car purchases/leases.
Quote, originally posted by backpacker »

obviously, if your only goal is to lease and not to ultimately own and drive it for years and years, of couse you should not put money down.

Again, you should just invest your money that you set aside as down payment in a higher yield investment or pay off some higher interest debt rather than putting it towards a down payment for a car where you're practically getting free money (our lease Money Factor on my wife's Passat is 0.00002 = 0.048%). This is the idea you don't seem to get, and keep hammering on the lower montly payments which clearly comes at a price (a HUGE down payment that could be used elsewhere a lot smarter with a higher rate of return).
Quote, originally posted by backpacker »

my post was geared towards those looking to take advantages of both systems (ie: want to own, want low payments now, is it worse to be in a lease than a purchase? the answer is "not necessarily")
nothing in your recent posts or your earlier ones seem to challenge that - including your comments on insurance. (in both purchasing and leasing you are putting $$$ into an asset that will only ever decline in value, so of course you won't see it again - while comparing "lease with 0 down with no intent to own" and "lease with $$$ down and no intent to own" you are better off...i was looking for how your comments apply to the scenario i was talking about).
...and, of couse, one might also say that leasing in perpetuity is just as silly since there you never end up with a paid-for vehicle but are constantly paying car manufacturers for the privilege of letting you drive.

If you want to buy, buy! If you want to lease, lease! I always tell people who lease with the ideas you just posted in their minds that they are leasing for the wrong reason. Granted that you can play the system and lease with the intent to buy at the end while investing your money wisely, but most people lack the financial discipline to end up with a success story in a situation like that. I have seen a lot more early lease terminations due to "change of heart" and a lot of people who get mad when they're about to be hit with a huge over the mileage fee, or others who feel that they should not pay such a high residual at the end (yet they never complained about the low monthly payments that the high residual made possible) than people who actually ended up with a happy and pre-planned lease buyout.
I will never buy a car, because I can afford to lease a new one ever 3-4 years. I am happy with this setup and I don't feel the need to buy a car. I wrote a post that I have linked earlier that pointed out the benefits of leasing versus buying, even if you want to keep the car after the lease term. I don't argue that, we are on the same level regarding that question. It's the matter of huge down payment that I am totally opposed to and you have yet to bring up a good reason as why to do it, besides the lower monthly payment. I brought up the higher rate of return spending that money elsewhere, and the GAP situation (that you either do or don't get at this point).
And again, the down payment that you keep bringing up has NOTHING to do with the benefits of lease vs. buy! Absolutely NOTHING! As long as you can find a better rate of return on your money or have a higher interest debt obligation than the lease money factor or finance interest rate, putting down money up front is totally insane and not financially wise whether it's a lease or a conventional loan.
This is the last post where I will waste time to explain my point. If you still don't get it too bad. "You can take the horse to the water....". I just hope that other readers will get my point that is valid and stands still.
 

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A couple of points:
1. It is very hard to get any decent return on money at the moment, even to match "low" money factor rates.
2. My car insurance company will provide "gap insurance" on a leased car for $5.00 for six months. Something anyone should have.
3. Since few of us can get tax deductions for a car lease, the major reasons to lease are as you stated, to get a new car every 3 years without the risk of losing your shirt on a trade in, or to get to drive a car that a person cannot really afford which is not a good idea.
 

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Re: (billsbuddie)

Quote, originally posted by billsbuddie »
A couple of points:
1. It is very hard to get any decent return on money at the moment, even to match "low" money factor rates.
2. My car insurance company will provide "gap insurance" on a leased car for $5.00 for six months. Something anyone should have.
3. Since few of us can get tax deductions for a car lease, the major reasons to lease are as you stated, to get a new car every 3 years without the risk of losing your shirt on a trade in, or to get to drive a car that a person cannot really afford which is not a good idea.

All of these points are valid!
1) as long as you have a mortgage it's never too hard to find decent return. You can apply that $10K that you were thinking about using as a down payment and put it in your house that has a rate of 5%-6%. BAM! You're done. And let's not even get started on high interest credit card debt..... Rate of retunr might not be interest earned but interest elliminated, it is just as good.
2) Progressive (my insurance provider) also has GAP coverage. Most lease agreements have free GAP coverage built into them so there is no need to buy extra from your insrurance company. However I advise people to buy GAP coverage on a balloon loan or a conventional loan with 0 down. I have GAP coverage through Progressive on my A4 as it's a balloon loan, and I have GAP coverage through VWoA on the Passat as that is a lease.
3) Yup! And in states where leasing is really sucky a balloon loan will do just the same and even better! I just wish more people would realize that lease is not to drive a car cheap, but to drive a car for 3-4 years for a lot of money. Leasing a new car every 3-4 years will always be more expensive than owning a car until the wheels fall off. Unfortunately a lot of people lease because they "can't afford to own"
 

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Re: Learn how to calculate a lease... (GTakacs)

Quote, originally posted by GTakacs »
Again, you should just invest your money that you set aside as down payment in a higher yield investment or pay off some higher interest debt rather than putting it towards a down payment for a car where you're practically getting free money (our lease Money Factor on my wife's Passat is 0.00002 = 0.048%). This is the idea you don't seem to get, and keep hammering on the lower montly payments which clearly comes at a price (a HUGE down payment that could be used elsewhere a lot smarter with a higher rate of return).
...
If you want to buy, buy! If you want to lease, lease! I always tell people who lease with the ideas you just posted in their minds that they are leasing for the wrong reason. Granted that you can play the system and lease with the intent to buy at the end while investing your money wisely, but most people lack the financial discipline to end up with a success story in a situation like that. I have seen a lot more early lease terminations due to "change of heart" and a lot of people who get mad when they're about to be hit with a huge over the mileage fee, or others who feel that they should not pay such a high residual at the end (yet they never complained about the low monthly payments that the high residual made possible) than people who actually ended up with a happy and pre-planned lease buyout.

i guess it is really a question of where your discipline is.
if you can have a big chunk of $$$ sitting somewhere to earn interest that you will take $X from each month to put on the lease...agreed, it does make sense to go $0 down. but many would find the temptation to put that to use somewhere else (ie: why have $10,000 sitting in an account when it could go to some sort of other debt or something else?)
conversely, your point is valid too about having to be disciplined to invest the difference when you lease/intend to buy and not just spend it.
for some, though, the latter is "easier discipline" to have (ie: take it away right away and put it in a retirement savings plan so you never miss it) than the former (ie: have it sit there while you slowly drain it down).
in the end, you will probably come out better on your system (though I would wonder about what sort of return you will get when you have $$$ placed somewhere that you can pull money out regulaly without payment or penalty) because you start with a bigger pot and it will thus generate more interest at the start (as opposed to my "build the pot up by investing the savings" approach which will end up with more principle in it at the end, but with little time to generate interest).
but, you go too far to say there is no benefit to the other approach. as i said - for some people, it will work better - depends on who you are, where your life is going, and what your needs are like in the next few years.
 

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Re: Learn how to calculate a lease... (backpacker)

Quote, originally posted by backpacker »

i guess it is really ain the end, you will probably come out better on your system (though I would wonder about what sort of return you will get when you have $$$ placed somewhere that you can pull money out regulaly without payment or penalty) because you start with a bigger pot and it will thus generate more interest at the start (as opposed to my "build the pot up by investing the savings" approach which will end up with more principle in it at the end, but with little time to generate interest).

just to play with my own idea:
Lets say the difference between $0 down and $10000 down means $200 in lower payments for a 4 year lease.
If I put $10,000 in savings and draw down, as indicated, you will be restricted on where you can save if you intend to regularly draw out (ie: most market investments will have fees, etc - plus you plan the risk of losing - you can try bonds of varying lengths - but that can be a pain to organize). Maybe a "high rate" savings account is the easiest, but in today's dollars (in Canada, anyway, where our interest rates are actually higher than yours) you might get 1-2%. Lets be generous and say you average 4% return (which, with today's rates, is VERY generous for the type of no-risk/flexible yield you want).
After 4 years of having that $$$ there while pulling $200 out of it a month to cover the higher lease payments, you would end up with about just over $1,300 left in the account.
Ok, now say you want to start adding to a pool with $200 per month. First thing is you can expect a better rate of return b/c you can actually take some advantage of better rates b/c you can put it into retirement savings plans, better yielding bonds, etc. So, lets say you end up with 6% (because you want to take low-risk investments) After 4 years, you will have $10,873.66 in the account. After taking into account the intial "down payment " (or cap. cost reduction) you will be have earned $873.66. Or, about $425 less over 4 years than putting $0 down.
Now, I think I have been very generous with the interest rates.
A more realistic rate for your option would be 2.5 to 3%. A more realistic rate for my option (ie: you are really saving the $$$ to grow it) would be 8%.
If that happens, your method will give you $1,061.57 and mine will leave you with $11,345.12 - or $1,345.12 in interest OR about $300 better than yours.
look. as i said before, depends on your preference. but your view is a bit dogmatic and does not recognize other options/alternatives - which is never a good thing.
dont be afraid to be creative.
 

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Re: Learn how to calculate a lease... (backpacker)

...just because i am warming up to this now...
it can get even WORSE for the $0 down option.
to use my earlier numbers ($55,000 car with residual of $20,350 and $12,500 down (or cap. cost reduction)).
If I put $0 down, my monthlies are $294 higher than if I put $12,500 down.
So, start with $12,500 in the kitty and take $294 off while earning 4%/year on the balance. After 4 years...you will actually be in the hole $611.14 (ie: you will have saved/earned zip - you will have exhausted your reserve account and will need another $611.14)
Conversely, put away $294/month and earn even just the same interest I was giving you (4%) you will have $15,276 in your jeans at the end of the day - or your "down" will be made up plus you will have earned almost $2,800. better off that "$0 down" by $3,400.
Point is folks, again, sometimes it works, sometimes it doesnt. You have to look at it carefully and decide.
Keep your stick on the ice and head up into the boards.
go flames go.
 

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Re: Learn how to calculate a lease... (backpacker)

Quote, originally posted by backpacker »
...just because i am warming up to this now...
it can get even WORSE for the $0 down option.
to use my earlier numbers ($55,000 car with residual of $20,350 and $12,500 down (or cap. cost reduction)).
If I put $0 down, my monthlies are $294 higher than if I put $12,500 down.
So, start with $12,500 in the kitty and take $294 off while earning 4%/year on the balance. After 4 years...you will actually be in the hole $611.14 (ie: you will have saved/earned zip - you will have exhausted your reserve account and will need another $611.14)
Conversely, put away $294/month and earn even just the same interest I was giving you (4%) you will have $15,276 in your jeans at the end of the day - or your "down" will be made up plus you will have earned almost $2,800. better off that "$0 down" by $3,400.
Point is folks, again, sometimes it works, sometimes it doesnt. You have to look at it carefully and decide.
Keep your stick on the ice and head up into the boards.
go flames go.

And.... you'll have to pay $1,125 more in sales tax upfront, which means you are not earning interest on that... and if you get rear-ended the next day and your car gets totalled, you are SOL ON $13,625!!!

You're logic is flawed. This makes sense to do on a standard amortized loan, but not a lease. If you wanted a logical comparison, you should compare keeping the money in the investment vessel and applying additional money to that investment, vs. just leaving the money in the entire time. Meaning, if you have to take money out of your savings to make your car payment EVERY MONTH, your broke butt shouldn't be buying that car to begin with! I.E.
You have $25k in an investment of some sort. You take $12,500.00 and put it down on your car, and leave the other $12,500.00 in the savings. Then, you pay yourself back $294 a month to the investment over 48 months. That would be a comparison to make - whether to pay yourself back to the investment vessel, or to leave it in there. Your analogy of taking money out of savings to make a debt payment doesn't make sense...
Then of course, you also have to run the numbers in a realistic scenerio. You can't generalize based on one set of numbers and say that "to do this is the best way every time!" (to paraphrase). If you have a high finance rate on your loan, and a low interest rate or ROR on your investment/savings, then it would make way more sense to put more down on your debt - although I still wouldn't recommend doing it on a lease for the whole gap thing...But, if you had a low finance charge on your lease, and a high or good ROR on your investment/savings, it would not make any sense to dump your investment into a debt like that - you would't save more interest than you would have made. Take for example my broker. He of course has very very strong credit (he makes $300,000.00 a year, can you blame him?). He has a car payment (
). I asked him one time "Do you really make $300,000 a year?". He laughed (because everybody can see his checks in our company, so we know). "So," I said... "why do you make a car payment?". "Because" he said. "If I took that same money out of my investment, in a Bear market I would lose investment capital, and in a bull market I would lose interest. All in all, either way I would lose more money taking money out of my investments than not paying the 0.9% over 36months on my car. Compound interest....". That was before I was licensed a few years ago, but que cera cera. My point? You can't generalize without knowing the real situation. http://****************.com/smile/emthup.gif
 

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Re: Learn how to calculate a lease... (SN2BDNGRZB55)

Quote, originally posted by SN2BDNGRZB55 »

And.... you'll have to pay $1,125 more in sales tax upfront, which means you are not earning interest on that... and if you get rear-ended the next day and your car gets totalled, you are SOL ON $13,625!!!

yeah, well as i indicated above, any time you put $$$ into an asset that will only depreciate, once it gets totalled you lose that $$$.
i "buy" a car for $50,000, put $10,000 on it and make payments for a year - and it gets totalled after a year (when it is worth say $40,000) i am still "SOL" on the down payment b/c insurance will only ever give me what it is worth. depreciating asset. means whatever you put into it will be worth less over time.
Quote »
You're logic is flawed. This makes sense to do on a standard amortized loan, but not a lease. If you wanted a logical comparison, you should compare keeping the money in the investment vessel and applying additional money to that investment, vs. just leaving the money in the entire time. Meaning, if you have to take money out of your savings to make your car payment EVERY MONTH, your broke butt shouldn't be buying that car to begin with! I.E.

read the whole exchange.
the whole point was whether it is better to put $$$ in for lower payments when one wants to buy @ the end, or put that $$$ in an account and take out from it over time to end up in a better spot.
it isn't being "broke" it is about directing resources. amazing that you folks cant see that people will want to direct resources in different directions. a person who can put $10K down on a $50K is not "broke" - just wants to keep payments low for a few years (lets say b/c she is pregnant and knows that while she is on mat leave for 6 months her income will be temporarily lower, etc.)
Quote »
You have $25k in an investment of some sort. You take $12,500.00 and put it down on your car, and leave the other $12,500.00 in the savings. Then, you pay yourself back $294 a month to the investment over 48 months. That would be a comparison to make - whether to pay yourself back to the investment vessel, or to leave it in there. Your analogy of taking money out of savings to make a debt payment doesn't make sense...

no, it wouldnt. that is a different set of circumstances from the one that we were discussing.
if you change the circumstances - if have $25k and i put some down and leave some in savings will i be better off then putting $0 down?
again - the only answer is "it depends" - it depends on the money factor. it depends on what interest rate you can earn on the remainder.
Quote »
Then of course, you also have to run the numbers in a realistic scenerio. You can't generalize based on one set of numbers and say that "to do this is the best way every time!" (to paraphrase).

which is exactly what i was NOT saying.
in fact, my point was that the "never put $$$ down crowd" is doing just that.
my point is sometimes it works, sometimes it doesnt. it depends on who you are/what your circumstances are/etc.
(i am pretty sure i said that at least 5 times in the earlier posts)
Quote »

If you have a high finance rate on your loan, and a low interest rate or ROR on your investment/savings, then it would make way more sense to put more down on your debt - although I still wouldn't recommend doing it on a lease for the whole gap thing...But, if you had a low finance charge on your lease, and a high or good ROR on your investment/savings, it would not make any sense to dump your investment into a debt like that - you would't save more interest than you would have made. Take for example my broker. He of course has very very strong credit (he makes $300,000.00 a year, can you blame him?). He has a car payment (
). I asked him one time "Do you really make $300,000 a year?". He laughed (because everybody can see his checks in our company, so we know). "So," I said... "why do you make a car payment?". "Because" he said. "If I took that same money out of my investment, in a Bear market I would lose investment capital, and in a bull market I would lose interest. All in all, either way I would lose more money taking money out of my investments than not paying the 0.9% over 36months on my car. Compound interest....". That was before I was licensed a few years ago, but que cera cera. My point? You can't generalize without knowing the real situation. http://****************.com/smile/emthup.gif

i agree with your last sentence completely.
actually, your last paragraph is pretty much on.
 

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Re: Learn how to calculate a lease... (backpacker)

Quote, originally posted by backpacker »

yeah, well as i indicated above, any time you put $$$ into an asset that will only depreciate, once it gets totalled you lose that $$$.
i "buy" a car for $50,000, put $10,000 on it and make payments for a year - and it gets totalled after a year (when it is worth say $40,000) i am still "SOL" on the down payment b/c insurance will only ever give me what it is worth. depreciating asset. means whatever you put into it will be worth less over time.

I agree that you should always consider every facet of your finance options before making any purchase.. however if you have a $50,000.00 vehicle that is only worth $40,000 after a year, but you originally put $10,000 down and you've made some payments, you'll get some money back due to the small amount of principle reduction of your amortized payments. If it gets totalled the next day, you'd only be out the sales tax because there would be no "market value", just the MSRP (if it was brand new of course), so your insurance company would/should pay the MSRP and the only thing left on your loan would be the tax, unless you paid that up front (either case you'd still be out). However, in either of these cases, you would be out COMPLETELY in a lease... besides, most cars depreciate about 50% after four years more or less, so a car depreciating 20% of it's value after a year is not likely (although not unheard of), so in most cases you'd get some money back if it was totalled on a loan.
I think the major issue that each perspective is trying to stress is, a lease generally isn't meant to OWN a car in the long run, it's meant to use as little as up front capital as possible to get into a vehicle, usually. There may be situations where you don't qualify for a good interest on a loan, but for some reason qualify for a promotional lease program with a low money factor, then the tables might be turned even if you wanted to buy the car.. but of course it always subjective to the specific situation. http://****************.com/smile/emthup.gif
 

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Re: Learn how to calculate a lease... (Cyberrick)

Quote, originally posted by Cyberrick »
Yeah, a person that understands leasing would catch that Bump right away. However, most consumers do not have a clue.
There are as many ways to bump as there are cars. Another favorite is the mileage Bump. When a customer asks how much more to go to 15K from 12K. Goes like this:
Well lets see the up front mileage charge is $.10 so your looking for 9000 extra miles. That would be $900. KaChing...Just racked up another $500 and change.
Then there is the Credit Challenged soul who knows he is a fish. VW Credit comes back with a B tier or C and we work them back down to an A or B and keep the difference by just not telling the customer we worked the bank back to a lower credit tier.
Another favorite is the $1000 out of pocket lease where the security deposit is waived and converted to cap cost reduction keeping the payment the same. Net result more $
I guess the point is Retail Brick and Mortar Sales will never change. I have been at this 20 years. The last 5 doing nothing but Internet business. This is the only way to go. Unfortunately, there are very few dealers that have really embraced the Internet and customers get frustrated waiting days for a response to their inquiry, or worse the sales person trys to handle the e-commerce customer like a Brick and Mortar customer.
We handle it very differently here. I post both MSRP and Invoice prices on every vehicle in stock on our site. I have about 20 different Internet Specials representing basically the entire line up. I even have a special where the customer can request the Internet price structure for every VW via auto-response. I did post it live at one time. However, the Michigan VW Dealers do not actively use references to invoice in their advertising so I made it interactive where the consumer is requesting the pricing. The auto response come right back telling them by model what the mark up is as a percentage over or under invoice. This month most are well under invoice with the dealer cash.

Excellent post, even though it is over a year old. http://****************.com/smile/emthup.gif
Today I went shopping went my lil sis for an '05 Equinox. She signed a lease order purchase form, but has to go back Monday to see if you got approved.
A good deal, but a couple of things bugged me:
- The dealer gave us a price of $21111, and said we COULDN'T negotiate that? Huh? I was shooting for $300 over invoice, right around where carsdirect.com has it. That was a bit higher...
- The 'Nox had a $2000 rebate instead of $1000. So that's a plus. http://****************.com/smile/emthup.gif
- Even though he said the purchase price was $21111, it was written up at $21801, and just like Cyberrick said, they added the acquisiton fee to the back end. When I called him on it, he said the payment was still the same, so what?
- He showed us what the GMAC was looking at, however, there was no money factor on it and no invoice price on it. Is that normal? How could I negotiate with him if I had no where to start from, only MSRP?
It's $334/month for a 36 month 45K lease, which is pretty good, but somehow I feel a shell game going on somewhere. I added it up, using the method in this thread, allowing for dealer profit and such, and I got a payment lower than $334.
Any thoughts? We'll be back there Monday afternoon.
Thanks.
 

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Re: (CS VW)

OK lets see if we can get this to make sense. First though I have no idea about the vehicle you are talking about as to its MSRP, invoice price, options, and if applicable what option package discount it may have.
GMAC is one of the few lenders that does not use a money facor but rather they use a interest rate just like a loan. The 05 is 4% whether a FWD or AWD model. From the price you said 21111 I am guessing it is a FWD model with a MSRP somewhere around 22500-23000. The 15K residual on the FWD is 48% of MSRP for 36 months.
This model is in pretty short supply. We are also a Chevrolet Dealer and a pretty good size Chevy Dealer and we only have 2 or 3 on the lot right now. We do have a lot coming but the point is they do not sit for long.
There are 2 incentives at least in our market. There is a 1000 cap cost reduction rebate, and a 1000 GMAC bonus for leasing through GMAC. SO it sounds like the 2000 is the same in Milwaukee.
My recommendation would be to e-shop the deal you have at a couple of other Chevrolet Dealers. Give them the MSRP of the vehicle you want, the lease term and payment, and the amount you have to write a check for at delivery, and see if anyone wants your business bad enough to blow the current dealer out of the water. If you get a couple quotes within $5-6 of where you are at then I would recommend you return to the original dealer. If another dealer beats the deal on the same vehicle by more than $10 per month then perhaps you should see that dealer. I would not sell out the local dealer though if the other quotes are all in the same general area. Remember, you are telling them you have a deal at 334 per month and asking them to better is. My guess is you will probably see some 229 figures just low enough to get you out of the 30's and into the 20's. This does not mean your dealer gave you a bad deal. It just means someone is trying to steal your business away. Like I said though if someone comes up with a payment under 225 then go for it.
 
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