VWVortex.com - Learn how to calculate a lease...

# Thread: Learn how to calculate a lease...

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1. With so many leasing questions, I thought I would make a seperate post with the lease info from the Car Buying FAQ's. I have also attached my trusty lease calculator for those who still need it.
Calculating a lease payment is not difficult, once you have all the
information you need. The lease payment is based on the difference between
what you pay for the car and what the car will be worth at the end of the
lease, plus interest.

When it comes to leasing, here is the lingo:

Capitalized Cost - This is the selling price of the vehicle.

Capitalized Cost Reduction - This is simply a down payment.

Residual Value - This is what the car will be worth at the end of the lease
(usually stated as a percentage of the MSRP).

Money Factor - This is the interest rate. It is always give as a decimal
figure. While it is not necessary to know the actual percentage rate when
calculating the lease, you can figure it out by multiplying the money factor *
2400. This number is used no matter what the term of the lease. For example, a
money factor of .0025 would be an interest rate of 6%.

Inception Money (or Get In Money) - This is the amount of money that you have
to come up with at the start of the lease (not including any Capitalized Cost
Reduction). The inception money usually consists of the first month's payment,
a security deposit (usually equal to one month's payment rounded to the
nearest \$25 and a bank fee. It can also include the dealer documentation fee,
tags and sales tax on the any Capitalized Cost Reduction (more on that later.)
It is important to have all of these costs broken down so you know exactly
what is being covered.

Now, here is how we calculate a lease. First off, you need to have several
things: the MSRP (or sticker price), the selling price (Capitalized Cost), the
residual value (as a percentage) and the money factor.

Let's use the GTI 1.8T as an example. Adding in the 17" wheels, luxury and
leather packages, it will have an MSRP of \$22,000. The residual value for a
36-month lease (with 15K miles/year) is 57%. Usually a 12K mile/year lease
will have a residual value 2% higher (or 59% in this case). The money factor
for 36 months is .00250. Now that we have our figures, we can calculate the
lease. This may seem complicated, but take it step by step and it is quite
easy.

First we calculate the lease cost. Take the MSRP (\$22,000) and multiply it by
the residual value (59%). This gives us \$12,980. Now, take the Capitalized
Cost (what you pay for the car) and subtract the residual value from it. Let's
say we pay \$21,500 for this car. \$21,500 - \$12,980 = \$8520. Now, we take that
\$8520 and divide it by the lease term of 36 months. \$8520 / 36 = \$236.67.

If you didn't have to pay any interest, this is what your monthly payment
would be . Unfortunately, few banks lend money without charging interest . To
figure out the monthly interest you take the sales price (\$21,500) and add it
to the residual value (\$12,980) and multiply it by the money factor (.0025).
\$21,500 + \$12,980 = \$34,480. \$34,480 * .0025 = \$86.20. So, you are paying
\$86.20/month in interest. You add that to the monthly lease cost of \$236.67
and you end up with a monthly payment of \$322.87. But wait, there's more. Your
state needs to collect their part of the deal in the form of sales tax. If
your sales tax is 8.25%, you would multiply the monthly payment by 1.0825 for
a grand total of \$349.51. This is your monthly payment.

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.
One more bit of advice. Never lease a car for a longer term than the
manufacturer's warranty. If you do and something breaks past the warranty
period, it will be your responsibility to get it fixed and pay for it
yourself. Since you will give the car back at the end of the lease, you are
basically paying to fix someone else's car. So while generally longer lease
terms will give you lower payments, don't lease past the warranty period.
Also, don't lease longer than you will think you will want your car. Breaking
a lease early can be very expensive.

Updated Lease/Loan/Balloon calculator added (thanks GTakacs).

Modified by VeeDubDriver at 6:02 PM 8-28-2003

2. Thanks for all of your input Rick, and frankly, extremely good advice. None of what I am doing is very logical, I just have a "woody" for a TDI. I bought an 81 Rabbit diesel which I really loved, only compact car I ever owner. Passed it down to the kids. I am now retired and really don't "need" a new car. I am not sure what sparked my interest in the TDI, have not thought about a diesel in years since I dumped an 83 Impala diesel, I'm sure you know what those were like.
I have been looking at a 00 NB diesel, drove it and loved the feeling of shifting and the smell of diesel in the garage again. I am inpressed with the TDI mileage but I don't really drive enough to "justify" the difference.
I guess it is just an emotional thing. And it would be in my best interest to cool my jets until this gas price thing settles down and the availability and prices will probably be back to earth.
I probably need to take a cold shower.

3. Its a great car and it sounds like you are the type of guy that would keep it a long time. You should just buy the car and get it over with.
VW has a 3.9% rate which is OK. However, there are a couple of banks Chase Manhatten being 1 that will give people with good credit a 3.34% rate for 60 months. Now this is the Michigan rate I would think it the same where you are. You would have to ask the dealer if they are signed up with Chase.
The benefit here is that VW has a \$500 Dealer Cash allowance for cash deals or deals that are financed not using one of their Specials. So you would have to let the dealer know that you know they get a \$500 incentive and you want it passed on to you. Tell him up front though so you can see what sort of a real discount you are getting. I mean if he gave you a \$500 discount in essence he would still be selling you the car at MSRP. I would not look for too big a discount though on TDI's they have been very scarce for months now.
If you financed say \$20,000 for 5 years at 3.34% you would have a \$362.40 monthly payment probably in line with the lease they are quoting you.
You are doing the right thing with the TDI I just happen to feel that you would be better served purchasing the car.

4. I have finally made the deal. Jetta GL TDI Manual, no options. The dealer is going to give me the \$500 and take my trade for what I wanted for it, about \$500 more than I was afraid I would get for it. And as a result of all the good advice I received here on leasing vs buying vs VW credit vs banks, etc... I am going to pay cash from my IRA which is not earning enough to match the 0.9%.
I have learned a great deal from reading everyone's thoughts and have taken some of the counsel that was offered. I think this is a very helpful sight and I appreciate everyone who is interested enough to contribute.

5. Good Job glad to hear you picked up the \$500 Dealer Cash. Hope you enjoy the TDI.

6. I think i burped. I got a last minute case of presale buyers remorse. So I backed out of the deal and bought a 2000 NB TDI instead. I figured I could see if I wil still have all the fun I am anticipating six months from now. If not it will be a lot cheaper to get out from under.

7.  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.

8.  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

9.  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 [IMG]http://*****************.com/smile/emthup.gif[/IMG]

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

11. 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.

12.  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"

13. 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.

14. this is a great thread - thanks for all the info!
now that I know how to calculate my lease, anyone have the current money factor, residual, and any factory cash incentive for a 2005 Jetta GL? Looking at 39 or 48 month lease, 12k or 15k miles (not sure yet).

Modified by doctorit at 9:01 PM 2-19-2005

15.  Quote, originally posted by doctorit » this is a great thread - thanks for all the info! now that I know how to calculate my lease, anyone have the current money factor, residual, and any factory cash incentive for a 2005 Jetta GL? Looking at 39 or 48 month lease, 12k or 15k miles (not sure yet).

If you lease through VW, you get a total of \$1700 incentives right now, plus 500 if you'r a current vw owner. 0.00025 money factor on A tier, 50% at 39 mos, 46% at 48mos (15k) add 2% for a 12k lease

16. can a dealer dictate the term of the lease? Like if I want a 36 month and they say I can only do a 48 is that a false statment?

17.  Quote, originally posted by Audi Finz » can a dealer dictate the term of the lease?

No they cannot. Simple as that.....

18. they can quote a payment thatis only for 48 months and say that yuou can't do the same payment for 36.

19. I must say this thread is a wealth of information. That said, I am hoping to get some info myself.

Right now, I am looking at picking up the hot, new 2005.5 Audi A4. Equipped as such: 2.0T Q w/6 speed; sport package; prem. pack; light package; prem audio w/XM; cold weather pack; Audi DVD Nav+; Quartz grey w/Ebony interior and power rear and manual side sun shades. The dealer is quoting me \$38084 vs. MSRP of \$38995. The specs on the Premier Purchase are 39 mos @ 12k a year w/\$2000 down + fees. (Oregon does not have any applicable taxes to this deal). Monthly payment is to \$488 with A tier credit. Does this compute??
I called the dealer and inquired more and they told me that the rate was 4.6% and a residual of \$21447.
Is this deal workable to more favorable numbers even though this model is brand spanking new? I have been wading through the advice in this thread and I want to think I can do better.
I appreciate the help!
Cheers.

20. Here's the easiest formula:
(price + residual) x money factor = interest
(price - residual)¸ ¸ term = depreciation

add them togther for a payment.
taxes are based on total of payments.

21. , , was supposed to be a division sign

22. Why is the residual value added to the sales price to figure the interest?

23. I apologize for taking this a little OT, but is there a similar post on Vortex or other site concerning financing the purchase of a car

24.  Quote, originally posted by Tony@GKF » I apologize for taking this a little OT, but is there a similar post on Vortex or other site concerning financing the purchase of a car

This might help: http://www.edmunds.com/finance...ce..2.*
Otherwise, go ahead and create a new thread and we will see if we can get you questions answered.