Learn how to calculate a lease...

[Cyberrick]

You still did not say what bank or lender the dealer is putting you through. If VW Credit it would be a great deal. However, VW Credit is about $30 per month higher than the best banks on a Wolsfburg Jetta. So using VW Credit in your case wold not be in your best interest as it will cost you about 1000 more in payments over the term.

There are some benefits to VW Credit so I do not normally use another lender unless the payment difference is significant. Certainly not for a 10-15 difference. However, when you start talking $30 a month most people would think that significant.

No other lender will ever offer you anything like the current Lease Pull Ahead Program. Technically this expires at the end of the year. However, most people in the business seem to think that the Lease Pull Ahead Program is here to stay. LPA might allow you to terminate this Wolfsburg Lease up to 10 months early so your 36 month lease may in fact become a 28 month lease if you wanted to turn in early and get another VW.

The private banks will never simply allow you to terminate early unless someone makes the remaing payments. So LPA is a benefit to VW Credit. If you are certain you will want to keep this vehicle for the entire 36 months though another lender could save you some cash.

Also if you do not have sterling Credit VW is much more liberal in purchase policies than a Wells Fargo. Private Lease Companies that offer these great rates do so only for individuals with very good credit. Wells Fargo requires a 730 Credit Score to get their Best Rate.

[waffleboy]

Hmmm...I didn't know you could lease the car not necessairely though VW of America! Damn, I just closed the deal through them. I thought a lease is closed through the manufactor of the car...in this case VW. I don't know you could lease the car by using another banks. Shoot, they took me for a ride again
but ye, that is the final price I got through them all in. Think it is still a very good deal. So, I am picking it up the 30th of Decmeber and will be riding the new year in my new car! Wooohooo...Happy New Year! hahaha

[Cyberrick]

Definetely a good deal through VW Credit. Its just that whatever deal VW Credit has on an 03 Wolfsburg Jetta is about $30 per month less through Wells Fargo.

[waffleboy]

If I didn it through Wells Fargo...how do you do that? Ones you brought down the price you contact wells fargo and tell them you want to lease this car? I have no clue how yu would do that? I think the price I got the lease on was close to 16800.

[Cyberrick]

This is not something you would do. Most dealers have multiple lenders that they use for when the manufacturer rates are not competitive. Most dealers also have computer systems like Lease Link or Lease Profit that tell them the best bank as far as payment goes for any given vehicle or scenario. So when we run a lease we see for every term sorted by lowest payment. So who ever has the best deal going on a vehicle is shown every time we figure a lease. If you were buying your 2003 Jetta how would you feel about financing through VW Credit at their best rate of 4.9% when I could put you through Chase at 3.34%. It is the same thing with leasing.

Like I said earlier though there are benefits to dealing with the manufacturer that you will not get with a private bank like Wells Fargo. So when differences are small I forget about the private banks. However, at $30 a month they are worth a look.

[waffleboy]

so, let me get this streight, you have to ask for the cheapest lease or do they authomatically find the cheapest one for you and calculate the lease at that point? I have just been approved by VW credit...meaning I can still change as I don't have the car yet, I am guessing. Might piss of the dealer for doing that I guess.

[Cyberrick]

I can think of only 2 reasons why the dealer would be using VW Credit on a 2003 Wolfsburg. One is that they are not signed up with Wells Fargo or Wells Fargo does not do indirect lending in your State. (I doubt the second part). The other reason may be that you do not qualify for a Wells Fargo Lease. The standards are much higher with a Bank like Wells Fargo than they are with a Captive Finance Source like VW Credit. For the Wells Fargo Gold Plus rate you need a 730 Credit Score, 5 years in the Credit Bureau, and similar prior credit or a Mortgage. In other words they don't buy first time buyers.

My advice would be to call the dealer or have someone call them for you. Ask for the Finance Manager. Then ask him point blank if their dealership has other lenders they use for leasing. If the answer is yes ask if they do business with Wells Fargo. If yes and you are certain you meet the credit criteria I mentioned ask him why you were not offered their program as it is about $30 per month better than VW Credit.

Remember though a private lender like a Wells Fargo cares about only 1 thing and that is getting all of their payments on time. You will never see a private lender like Wells Fargo offer a Lease Pull Ahead Program like VW, GMAC, Ford, Chrysler, and just about every other manufacturers finance arm. So while you will be hearing about friends that got out of their lease 8 or 10 months early and got a brand new car without it costing them anything. Just remember you already got your savings up front and enjoy the Wolfsburg for the entire 36 months.

[waffleboy]

o.k..what is exacly the lease pull ahead program?

[Cyberrick]

WaffleBoy:

You don't get out much huh. Lease Pull Ahead Programs started 3 or 4 years ago with GMAC. It has since spread to most other captive finance sources. Simply put the lender allows you to terminate you current lease anywhere from 4 to 10 months prior to the scheduled maturity date as long as you lease or purchase another vehicle from that manufacturer.

[waffleboy]

ah ye that is the one I thought so. I got a letter from VW telling me I could quite early as long as I go for a new VW. That wasn;t new as I also talked to other manufacturers and they had even proposed to pay the rest of the payment on my VW if I would go and get their car which was a Lexus, Saab or a Volvo. All 3 had proposed to pay the rest of my payments, so I wasn;t obliged to stay with VW.
Thanks for the explantion man

[melech]

Cyberrick, your are insights into the leasing process are extremely helpful. However, don't dealers tend to make a profit by marking up the money factor? Therefore, wouldn't they try to place you with the lease company that offers the dealer, not necessarily the consumer, the best deal, such as how much mark up they will permit the dealer to charge?

[Cyberrick]

Sure all the time. Whether or not they mark up the factor. If a customer presents a payment he has been shopping at another dealer and it is simply a matter of beating that payment many times a dealer would simply see if there was a better lease company on that vehicle.

This does not happen a lot with core product like a Jetta or Passat GLS as VW will typically have the best payment going. It does happen on other vehicles though that are not supported with lease specials like a Beetle Convertible, or a Golf, or TDI.

The worst thing to do as a consumer is to shop payment. ALWAYS shop the price of the vehicle and the payment is secondary. Once you have established your price then ask about the bank and if that bank offers the lowest payment available on the vehicle. Don't get too caught up in payments though. If VW Credit is close to that of a private bank like $10 per month or less I would always go for the Manufacturers Lease as it affords you benefits that you would not get with a private bank like a Lease Pull Ahead Program. However, if and when the differences are $20-30 per month or more you have to look at the deal and ask yourself if you really intend to keep the vehicle to full term. With a private bank there is never an easy or cheap way to terminate early.

[billsbuddie]

I am considering leasing a Jetta TDI, with an agreeded upon sales price of $19000. Can anyone tell me the VWofA residuals, money factor, lease fee, etc. My credit score is an even 800. I am looking at 15000 miles and 36 months. I am not too trusting of the finance guys in dealerships.

[VeeDubDriver]

Money factor is .00133 and residual is 50%. There is a $575 acquisition fee, first payment and a security deposit equal to your monthly payment rounded up to the nearest $25, plus sales tax, tags and dealer fees.

[billsbuddie]

Thanks VeeDubDriver. So if someone quotes a no money down lease I need to add the first payment back into the Cap Cost? Another question is about "dealer fees", is it a standard amount? Or is this the area where some profit gets hidden?

I do appreciate your help, I leased a Lincoln many years ago and really have no clue what happened to me, I was happy as a lark and probably got screwed.

I am debating this lease idea, I don't think I can make 3.192% money on my investments in this market.

[VeeDubDriver]

If you are doing a sign and drive lease, the first payment will go back into the capitalized cost. The security deposit and acquisition fee can either be rolled into the lease or you can raise the money factor to eliminate them.

As for dealer fees, most of them are just added profit. They deserve a reasonable amount for taking care of the tags and registration for you, but anything else is just profit.

[billsbuddie]

Everything jives with what you said except that he is giving me a money factor of 00225, maybe he is basing it on a different credit score.

By the way, what is the interest rate that VW Credit will charge on a 48 month note?

[VeeDubDriver]

The .00225 is the standard rate. Your dealer may not be aware that the TDI's have special lease rates now.

The 48 month term is 3.9%.

[billsbuddie]

Again I want to thank you for the information VeeDubDriver. I currently have 3 requests for quotes out and hope to make a decision by the weekend. I can't wait to smell that diesel.

By the way, a salesman yesterday scared the bejesus out of me by showing off the ESP on a 20MPH cloverleaf doing 50. That car has some great handling ability.

[Cyberrick]

Just a couple of things you may want to consider on this TDI Lease. The motivation with 90+ % of people wanting a TDI is saving money on fuel cost right?

The TDI option comes at a price. $1020 on the Jetta over that of the standard 2.0L engine. In round numbers it will take you abour 60,000 miles just to recover the difference in cost of the TDI Option.

Now consider this. The TDI's are in very short supply. As such you are not going to get as good of a deal on the vehicle from the dealer as you would on a 2.0L Jetta. In other words your discount if any on a TDI will be less than what you coulld expect on a gas Jetta.

The rate factor on the lease in .00099 on a 2.0L GLS Jetta and .00146 on the TDI again higher than the standard engine.

Finally, VW Dealers have a $750 Dealer Cash allowance on the lease of a 2.0L Jetta GLS and nothing on the TDI.

All in all leasing a TDI under these conditions is frankly DUMB. Not saying you are dumb. Just not looking at the Big Picture. We call this the "Sky is Falling" syndrome. Every time the gas prices spike people com out of the woodwork to get a TDI. Truth is this car is not for everybody. Typically TDI people fall into one of 2 catagories. Either they drive well over the national average like 20,000 plus miles per year, or they are enthusiast that keep their cars for many years.

You should slow down and sit down and put a pencil to it. Figure what the cost of ownership would be on the TDI over the term of the lease. Take the amount due at delivery plus all of the remaining payments. Then add the fuel cost for the term. If for example you have a 4 year 15000 mile lease divide 60,000 miles by the EPA fuel rating of the TDI then multiply by the cost of a gallon of Deisel.

Now get a competitive price on a 2.0L Jetta GLS and do the same thing. Not sure where you are located but in this market Detroit, with a little work you can get a Jetta GLS 5 Speed with Cloth, Cold Weather, and ESP for about 400 under invoice. That would be a 20465 MSRP car with a 19105 invoice for 18705.

This would give you a 36 month 15K lease at 306 per month and 48 months at 265. These payments include tax and are based on nothing down, just first payment and security deposit, plus plates How does that compare to your TDI lease?

Now if you are a Tree Hugger And the TDI is being leased because you just want to do your part to reduce the fossil fuel consumption and price is no object "Go For It" .

Last but not least. The GLS Jetta with the 2.0L engine can be purchased for 72 Months at 0% interest

[billsbuddie]

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.

[Cyberrick]

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.

[billsbuddie]

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.

[Cyberrick]

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

[billsbuddie]

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.

[SN2BDNGRZB55]

This is an awesome thread for people wanting to get a lease!

The only thing I would add to it would be the use of the term Interest or Interest Rate.

In the Financial World, Interest specifically is defined as the cost to borrow money, so while you may have a specific money factor in lease that the Lease Company charges, based on credit and other terms, I have to advise that there is no interest in a Lease. Interest in finances is defined as:

-BLOOMBERG(http://www.bloomberg.com/analy...i.htm):
"Interest
The price paid for borrowing money. It is expressed as a percentage rate over a period of time and reflects the rate of exchange of present consumption for future consumption. Also, a share or title in property."
-FORBES(http://www.forbes.com/tools/gl...ter=i):
"Interest
The price paid for borrowing money. It is expressed as a percentage rate over a period of time and reflects the rate of exchange of present consumption for future consumption. Also, a share or title in property."
The Dictionary of Finance and Investing (http://www.duke.edu/~charvey/C...y.htm):
"Interest
The price paid for borrowing money. It is expressed as a percentage rate over a period of time and reflects the rate of exchange of present consumption for future consumption. Also, a share or title in property. "

These definitions are all derived from information in Banking and Finance from the Securities Exchange Commission, the Standard & Poors business terms, NASDAQ, NYSE, and the US Financial Accounting Standards Board. Since you don't actually borrow money in a lease, you pay for use of the vehicle, there is no "Interest rate" or "Interest". The only reason this is important, and actually is similar to my personal experience when I got my first lease four years ago, is that if a person has the impression or mind-set that there is interest in a lease then they may approach the buying table with that mind-set because they may confuse it with the structure of a simple-interest loan. Also when they are talking to their leasing company, they may get frustrated and confused if the Lease Company tries to explain the difference to them and explain how their lease works and they use the word interest. A Lease Company will always tell you there is no interest, and the word interest is never seen in a Lease Contract.

I know it isn't that important in the overall decision to buy a car with a lease, but it does help separate the differences in peoples minds between Simple Interest Loans and Lease Contract structures. Thanks for this great FAQ on leases!



Modified by SN2BDNGRZB55 at 12:18 PM 5-28-2004

[SN2BDNGRZB55]

Quote, originally posted by Cyberrick »

Just a couple of things you may want to consider on this TDI Lease. The motivation with 90+ % of people wanting a TDI is saving money on fuel cost right? The TDI option comes at a price. $1020 on the Jetta over that of the standard 2.0L engine. In round numbers it will take you abour 60,000 miles just to recover the difference in cost of the TDI Option. Now consider this. The TDI's are in very short supply. As such you are not going to get as good of a deal on the vehicle from the dealer as you would on a 2.0L Jetta. In other words your discount if any on a TDI will be less than what you coulld expect on a gas Jetta. The rate factor on the lease in .00099 on a 2.0L GLS Jetta and .00146 on the TDI again higher than the standard engine. Finally, VW Dealers have a $750 Dealer Cash allowance on the lease of a 2.0L Jetta GLS and nothing on the TDI. All in all leasing a TDI under these conditions is frankly DUMB. Not saying you are dumb. Just not looking at the Big Picture. We call this the "Sky is Falling" syndrome. Every time the gas prices spike people com out of the woodwork to get a TDI. Truth is this car is not for everybody. Typically TDI people fall into one of 2 catagories. Either they drive well over the national average like 20,000 plus miles per year, or they are enthusiast that keep their cars for many years. You should slow down and sit down and put a pencil to it. Figure what the cost of ownership would be on the TDI over the term of the lease. Take the amount due at delivery plus all of the remaining payments. Then add the fuel cost for the term. If for example you have a 4 year 15000 mile lease divide 60,000 miles by the EPA fuel rating of the TDI then multiply by the cost of a gallon of Deisel. Now get a competitive price on a 2.0L Jetta GLS and do the same thing. Not sure where you are located but in this market Detroit, with a little work you can get a Jetta GLS 5 Speed with Cloth, Cold Weather, and ESP for about 400 under invoice. That would be a 20465 MSRP car with a 19105 invoice for 18705. This would give you a 36 month 15K lease at 306 per month and 48 months at 265. These payments include tax and are based on nothing down, just first payment and security deposit, plus plates How does that compare to your TDI lease? Now if you are a Tree Hugger And the TDI is being leased because you just want to do your part to reduce the fossil fuel consumption and price is no object "Go For It" . Last but not least. The GLS Jetta with the 2.0L engine can be purchased for 72 Months at 0% interest

This is awesome advice, you rock! So very few peole look at the big picture when making major purchase decisions, which consequently over the national average is leading America to a very dangerous place financially. Looking at things like this is what I do in my business - very commendable! Nice !

[Cyberrick]

I really wrote this out of necessity. About 1/3 of all of the inquiries I am seeing are for TDI's again the Sky is Falling Syndrome. In most cases once properly explained to a person the see the light and buy a standard gas model. The exception of course the the enthusiast or person who drives 25-3000 miles a year and keeps the car for 150,000 miles or more.

However, Leopards and people seldome change their spots. A person who has historically driven their new car 3-4 years and 45-6000 miles would be foolish to purchase or lease a TDI especially a Jetta, Golf, or Beetle. An argument could be made on Passat under certain cirmumstances as the premium for the TDI is only $205. Even there though only a purchase as the GLS Passat 1.8T has a 48 Month Rate Factor of .00002 on a lease which is essentially a 0% lease. They would actually pay around $40 in interest or rent charges over 48 months.

Everybody can relax though the Saudi's have upped the output from 7M to 11M barrels a day so by July the Spot Price on Crude will drop from $41 a barrel to under $30 which will take pump prices down to around $1.70 again. This will also have the same effect as about a $70Billion tax break to the economy which will raise the GNP this Summer by almost a point.

[melech]

Rick; Excellent analysis. Too many people simply don't work out the future savings in gas versus the cost of a new, gas-efficient car. Just as in the stock market there's an old saying, "Never sell on bad news", there needs to be a cautionary statement for car shoppers --don't make buying decisions during a newspaper crisis.

[Cyberrick]

Amen!

Have a Great Holiday and buy some Gasoline and spend lots of money its good for the economy. Just don't use the plastic money

[backpacker]

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.

[GTakacs]

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

[SN2BDNGRZB55]

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


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

[backpacker]

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 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

[backpacker]

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?