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follow up to buy/lease question.. whats with these payments(4 posts)

follow up to buy/lease question.. whats with these paymentsgrant
Nov 1, 2001 9:18 PM
hello again..

a few days ago i posted a question about leasing or buying a vehicle. so i went shopping and i was floored by the payments they wanted for a new vehicle. right now my truck payment is 250 mo. they want me to pay anywhere from 300.00 (with 2 grand down!) to 510 a month!!! my favorite truck, they want me to pay a monthly lease payment of 399!

am i just being cheap? are payments normally that high! if so i guess no new TT bike for a while.....

i hate to ask such a personal question. what kind of payments are you all making? are you still eating and living with a roof over your head?

big goose eggErik W
Nov 1, 2001 9:47 PM
I knew I'd be needing a new car so I saved up my money for a few years and paid cash for a 4 year old Toyota Corrola. Not the most glamorous car but it's 100% paid for and it gets me there.
You don't want to know. (nm)Canada
Nov 2, 2001 12:02 AM
re: follow up to buy/lease question.. whats with these paymentsBruno S
Nov 3, 2001 8:01 PM
I told you to go to that web page and read it.

This is how it works: When you lease a car you pay for the depreciation of the car during the lease period. The shorter the lease the higher the payments because the car loses more value during the firsts years.

Lets go through an example. You find a truck thats 20,000 and you what to lease it. Of course you have haggled this price without saying how you will pay for the car. (If you read the web page you will understand why)

The industry standard is that during 36 months the car will depreciate 50% of its value. The residual value is how much the car is worth after the lease. The 50% can change according to the milage that you said you will drive the car during the lease and it can also be set higher by the manufacturer as an incentive. The higher the residual value the better, even if you plan to keep the car. Lets stay with 50%. In addition to the price of the car the dealer may want you to buy extended warranty, anti-theft devices, etc. All this is optional but they may factor it into the lease payments when giving you the price. The only two extra charges the lease may have is a refundable security deposit (about $350) and a finance fee of about $500. So by now the total cost of the lease (no tax) is: 50% of 20,000 + 350 + 500 = 10,850. The monthly cost for 3 years: 10,850/36 = $301. With an 7.5% CA tax: $324.

But there is something more: leases have also interests. Its called the rent charge and can be significant. The amount of rent charge is calculated using a number called the money-factor. This can be converted to an APR so you can put it in prespective.

It works like this:

Rent charge = (Price of the Car + residual value) * money-factor * number of months in the lease

The residual value of the car is how much the car is worth after the lease. In this case the car depreciated 50% so its worth the other 50% of 20,000 = $10,000

Let put numbers:

A money factor of .00291 is equivalent to a 7% APR. The formula is APR = money-factor/2400

Rent charge lease= (20,000 + 10,000) * .00291 * 36 = $3143

Rent charge month = $88

Added to the $324 you are looking at $412 per month.
In addition you need to pay license, title, etc but all that should be way less than $500

Now, this is a very lousy lease. The interest rate is way too high and the residual value way too low. I just leased a $24,000 2002 car for 335 month. My residual was %52 and my money-factor .000439 (APR 1.05%)

Never lease a car for a period longer than its warranty. Shop around and try to get as much information as possible about the money-factor and residual value. If the dealer will not give them to you, read the web page and use the excel spread sheets to analyse the lease prices you get so you can figure them out.