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How Do I Calculate Monthly Lease Payments?

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    bargebarge Member Posts: 1
    Could you send me the spreadsheet too? Thanks.
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    themays2003themays2003 Member Posts: 5
    Hi...

    I realize this post was quite a while ago, but I would really like a spreadsheet like this. If Golic or anyone else can send it that would be great.
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    delta737hdelta737h Member Posts: 626
    Here's an interesting problem...

    I am troubled and somewhat vexed by the fact that there are so many lease software packages that incorrectly compute payments and the sales tax liability especially for sign and drive leases. Yes, even the finance captives miscalculate sign and drive leases where the first payment is capitalized as well as the sales tax. Some states (e.g., Ohio) compute sales tax on the total payments and this tax is sometimes rolled into the lease depending upon customer preference. The actual lease payment will be larger than the payment used to compute sales tax in those instances where the tax is capitalized. The reason, of course, is that the tax is capitalized and taxed tax is not permitted under the Ohio Revised Code.

    My procedure avoids computing tax on tax and emphasizes the need to separate taxable items from non-taxable items. I spoke with someone from the Ohio Division of Sales Tax and they agreed with my calculations but didn't know what could be done to remedy the flawed calculations. It would behoove them to remedy the matter ASAP as they are losing sales tax revenue.

    Many software packages use a two-stage lease payment calculation procedure which is inappropriate because it triggers inconsistencies leading to inaccurate lease payments and sales tax calculations. This, in turn, causes lease documents such as lease worksheets and agreements to be inaccurate. I contacted a major lease software developer and they agreed. They also agreed to amend their software in December 2006. To date, they have not implemented the amendments to their software. Hmmmm...

    The amount of dollar discrepancy can vary and usually isn't very large. So, who wins? Surprisingly, it is the consumer who is advantaged! That means someone loses. I'll let you think about that. Dollar differences or; who is advantaged, is clearly NOT at issue. What is at issue is the inaccurate methodology used to make the calculations.

    I've written a paper entitled Capitalizing the First Payment using the Money Factor Formula that clearly delineates my concerns emanating from inappropropriate lease payment calculations that necessarily arise when using this two-stage procedure and the need to carefully compute the appropriate sales tax liability. Inappropriate or skewed computations only serve to justify the rationale for incorporating standard computational methods in the Federal Reserve Board’s Regulation M paralleling those of its Regulation Z cousin.

    I'm simply amazed at the number of people in the car sales business that can't compute payments; especially in those cases where the first is capitalized. I was also amazed to learn that several GM dealerships in the Cleveland-Medina area could not compute a GMAC payment without reliance on software! Some, at least, took the initiative to convert the GMAC interest rate to a money factor to compute the payment and, then, couldn't understand why the GMAC program was giving them a different payment than the one they calculated. Amazing, simply incredibly amazing! I told them that, in addition to using an interest rate (yes, IT IS an interest rate!), GMAC computes an annuity payment where the residual value is discounted one month nearer to the present. They had no clue what I was even talking about! At any rate (no pun intended), below is an actual sign and drive (except for title, reg., tag fees) lease proposal that I FAXED to an Ohio Acura dealership...

    ____________________________________________________________

    2007 Acura TSX
    Retail Pricing Information

    Base MSRP 2007Acura TSX 5 Speed Automatic (CL9687JW)……………………………… 28,090.00
    Premium Pearl White……………………………….………………………………………….… 0.00
    Destination Charge…………………………………………………………….…………….…… 670.00
    MSRP……………………………………………………………………..…………….…...…… 28,760.00

    Agreed Upon Value……………………………………………………………………….……… 26,700.00

    Amounts Financed

    1st Month’s Payment……………………………………………………………………………… 361.71
    Security Deposit………………………………………………………………………………….. 375.00
    Acquisition Fee…………………………………………………………………………………… 595.00
    Sales Tax 6.00% x 35 x 329.77……………………………………………….……………….. 692.52

    Capitalized Costs

    Gross Capitalized Cost………………………………………………………………….……… 28,724.23
    Capitalized Cost Reduction…………………………………………………………….………. 0.00
    Adjusted Capitalized Cost……………………………………………………………………… 28,724.23

    Residual Data

    Residual Factor………………………………………………..…………………….…………. 0.62
    Residual Value (Residual Factor × MSRP)………………………..……………….…….….… 17,831.20

    Cost of Money/Term

    Money Factor…………………………………………….……………………….……….…… 0.00127
    Term (months)……………………………………………………………………….………… 36

    Lease Payment Itemization

    Monthly Lease Payment including Sales Tax…………………..……….…………….…….… 361.71
    Monthly Lease Payment excluding Sales Tax………………………………………..……….. 340.99
    Taxable Monthly Lease Payment……………………………………………………………… 329.77

    Charges Payable at Lease Origination

    License, Title, Registration Fees (estimated)…….……………….……………….….………. 120.00
    Amount Due at Lease Signing…………………………………………………………....…. 120.00

    GAP Coverage Included
    Annual Mileage Allowance: 10,000
    Disposition Fee: None
    Excess Mileage $0.15 per mile
    Reg. M Disclosure: NA

    ____________________________________________________________

    Naturally, the numbers were aligned in my word document.

    Unfortunately for them, they didn't agree with my numbers. I'm in the number crunching business, they're not. I have yet to find an Ohio dealer that can correctly compute sign and drive leases. My best guess is that most sales personnel as well as software providers don't have much experience with this type of lease because it is so very rare. At any rate, I would appreciate hearing the thoughts of those who care from someone who does.

    John
    Medina, Ohio
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    volvomaxvolvomax Member Posts: 5,238
    There is one thing.
    Most "sign and drive" leases really aren't that.
    The first payment and fees aren't waived,they are just added to the cap cost,and hence are taxable.

    I am not surprised that most people can't calculate a lease without software,that is what it is there for.

    I run into trouble with people who don't realize that interest on a lease is calculated on the dpereciated amount AND the residual. So they are always off on their own calcs.
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    delta737hdelta737h Member Posts: 626
    Volvomax,

    Note that the adjusted cap in my post reflects the first payment. Interest (and I can send you a spreadsheet if you're interested) is computed on a lease as follows...

    1st. The base payment (which is $361.71 in my example), coupled with the term, adjusted cap, and residual are used to determine the implicit interest (i.e, that rate that would reduce the adjusted cap to the residual at lease end). Most lease contracts describe how the unpaid lease balance, known as the adjusted lease balance, is computed. Most use either the actuarial or constant yield method.

    2nd. The implicit interest rate is applied to the unpaid lease balance after a payment is made to determine the amount of interest paid for that period. That interest is deducted from the base payment to determine the amount of book depreciation to be deducted from the current lease balance. Basically, the lease amortizes in much the same way that a loan does except payments are made at the beginning of a period instead of at the end. The monthly book depreciation paid in a lease is analogous to the monthly principle repaid in a loan.

    If you mean that the depreciated amount is synonomous with the unpaid lease balance, then I agree that interest is computed on the depreciated amount. However, interest is not computed on the residual. Interest is computed on the unpaid lease balance beginning with the adjusted cap and terminating with the residual. So, interest is never actually computed on the residual because the residual is really the lease end balance.

    Now, the money factor method for computing payments assumes that the average lease balance is simply the arithmetic mean of the adjusted cap and the residual (i.e., (AC + RV)/2) and so the average lease finance charge is computed by multiplying the estimated monthly interest rate (money factor*2) by this arithmetic mean. So, yes, the computation of the estimated average monthly lease charge is based on both the adjusted cap AND the residual.

    A sign and drive lease means you pay no upfront costs. It doesn't mean that all is forgiven or waived. It's still considered a sign and drive lease regardless.

    John
    Medina, Ohio
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    volvomaxvolvomax Member Posts: 5,238
    This is how you calculate a lease,and I am using made up numbers for this exercise

    MSRP: $30,000
    Residual %(of MSRP) 45%
    Money factor .00180
    Cap cost $28,000

    First,figure depreciation,which is cap cost minus residual
    Cap cost, $28,000, residual $13,500(45% of $30,000)
    Depreciation is $14,500,spread over a 36 month term= $402.78.
    Next figure interest which is money factor X the SUM of the cap cost plus residual.
    .00180X(28,000+13,500)= $24.30/mo
    So, your total lease pmt= $402.78+$24.30=$427.08
    Next you have taxes however they are computed by your state,plus things like license costs,acq fee etc.
    Obviously,if those things are added to the cap cost, your numbers will change.
    Beyond that,I am really not sure what it is you are after.
    Leases are figured the exact same way everywhere,by every lender.
    Yes, there are some issues like taxes,but they don't really affect the basic calculations.
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    delta737hdelta737h Member Posts: 626
    Volvomax,

    I already know how to calculate lease payments. I think you're missing my point. I'm presenting people with a challenge and so I'll re-phrase the problem.

    Given the following information, fill in the blanks.

    2007 Acura TSX
    Retail Pricing Information


    Base MSRP 2007Acura TSX 5 Speed Automatic (CL9687JW)……………………………… 28,090.00
    Premium Pearl White……………………………….………………………………………….… 0.00
    Destination Charge…………………………………………………………….…………….…… 670.00
    MSRP……………………………………………………………………..…………….…...…… 28,760.00

    Agreed Upon Value……………………………………………………………………….……… 26,700.00

    Amounts Financed

    1st Month’s Payment……………………………………………………………………………… _______
    Security Deposit………………………………………………………………………………….. _______
    Acquisition Fee…………………………………………………………………………………… 595.00
    Sales Tax 6.00% ……………………………………………….………....……….. _______

    Capitalized Costs

    Gross Capitalized Cost………………………………………………………………….……… _____
    Capitalized Cost Reduction…………………………………………………………….………. 0.00
    Adjusted Capitalized Cost……………………………………………………………………… _____

    Residual Data

    Residual Factor………………………………………………..…………………….…………. 0.62
    Residual Value (Residual Factor × MSRP)………………………..……………….…….….… 17,831.20

    Cost of Money/Term

    Money Factor…………………………………………….……………………….……….…… 0.00127
    Term (months)……………………………………………………………………….………… 36

    Lease Payment Itemization

    Monthly Lease Payment including Sales Tax…………………..……….…………….…….… ______
    Monthly Lease Payment excluding Sales Tax………………………………………..……….. _____
    Taxable Monthly Lease Payment……………………………………………………………… ____

    Charges Payable at Lease Origination

    License, Title, Registration Fees (estimated)…….……………….……………….….………. 120.00
    Amount Due at Lease Signing…………………………………………………………....…. 120.00


    I have not found an Ohio dealer yet that can correctly fill in the blanks. In Ohio, sales tax is computed on the sum of the payments and is due upfront. This is not a trivial calculation and most lease software packages incorrectly compute the payments. One software vendor agreed in December 2006 and said they would amend their software. To date, they still have yet to do so. The hint is that the money factor formula must be modified. The answers are given in my previous post. No fair peeking.

    John
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    volvomaxvolvomax Member Posts: 5,238
    Using $26,700 as the cap cost,plus $595 acq fee(adj cap cost $27,295),the base payment is $320.19.This IS the taxable payment(at least it is in AZ)
    Ohio tax is $19.21/mo or $691.56
    So, the smart thing to do is to pay the first payment,$320.19,plus the $120 license fees,plus the $691.56 taxes, plus the sec deposit $350 Out of pocket is $1,481.75.

    The problem arises when you put that $1,361.75($1481.75-$120) into the lease. It HAS to go into the cap cost.
    Whatever is in the cap cost IS taxable. doesn't matter if it is trade inequity, a finders fee, a broker fee, or a tax. It IS taxable
    So, adding that money to the cap cost changes the payment to $359.75, plus tax which is $21.59 mo or $777.24,an addition of $85.68
    Now, $85.68 tax difference isn't much,and a smart dealer would probably just eat it,but you can't NOT tax it if it is in the cap cost.
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    im_brentwoodim_brentwood Member Posts: 4,883
    Let me clarify, Volvomax is 100% correct.

    In states that tax the payment, you are getting taxed on the PAYMENT, whatever that payment may be or whatever that payment may include.

    Period.

    If you capitalize the security deposit, the first month's payment, or fees that in some states are otherwise tax exempt such as license, title, document, etc fees, they are added to the capitalized cost of the car.

    Remember Luxury Tax? Well if you capitalized that back in the day in a state that charged sales tax on the payment, then you paid tax on that luxury tax.

    I understand what you are trying to say, but here's how the state looks at it:

    State: You pay tax on the payment. Period. We don't care what you rolled into the payment, you pay tax on the payment, period, end of story, end of debate, we're the state and we say so.

    Now, Ohio says, and you can read it at

    http://tax.ohio.gov/faqs/content/sales_and_use/qa01.asp

    Tax is due upfront on the sum of the payments. Since you are capitalizing the first payment, your payments go up, probably about $10/per month on a 36 month lease with a payment in the mid $300s.

    So if your payment on your sign and drive lease is 35 X $350 you have a total amount of payments of $12,250. If your rate is 6% there's $735 in taxes in there. If you choose to pay nothing up front and capitalize this tax, then your payments will increase and you will pay interest on this sales tax.

    Because of how leases are calculated you will probably owe an extra $1.18 in sales taxes on the additional interest by using your method of capitalizing the first payment. I figured this out by multiplying the sales tax by the money factor.
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    cdnpinheadcdnpinhead Member Posts: 5,511
    who are reading it (and the even fewer who understand what's being said), is really useful & interesting stuff.

    Knowledge is power.

    Too much knowledge? Well, the jury's out.

    Rock on!
    '08 Acura TSX, '17 Subaru Forester
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    delta737hdelta737h Member Posts: 626
    State: You pay tax on the payment. Period. We don't care what you rolled into the payment, you pay tax on the payment, period, end of story, end of debate, we're the state and we say so.

    BUT IT'S NOT THAT WAY IN OHIO!!! Tax on Tax is illegal in Ohio per the Ohio Revised Code.

    And so with all due respect, Brentwood, you are mistaken as far as Ohio is concerned . I can't find the Ohio page that addresses the tax issue but I do have a transmittal letter from the Ohio Dept of taxation dated March 2006. There is a Q&A section incorporated in that letter. And, here is the Q&A that specifically addresses this issue...

    Q14) A lessor may advance the tax money to the lessee and finance the tax over the term of the lease. If this is done, is the repayment of the tax and any interest on that pepayment subject to tax?

    A14) The repayment of the financed tax and any interest on that financed tax are not part of the tax base of the lease for sales and use tax purposes and, therefore, not subject to sales and use tax.


    PERIOD.

    Therefore, the payment subject to Ohio tax in my post #59 is $329.77. The monthly lease payment of $361.71 is NOT taxable because it INCLUDES the financed tax of $692.52 (6.00% x 35 x $329.77). This is the amount of tax due upfront. I have chosen to capitalize the tax and so the fund provider (lessor) simply sends Ohio a check for $692.52 on my behalf. The $329.77 payment is ONLY an intermediate calculation whose only purpose is to determine tax liability.

    As mentioned above, in Ohio, it is illegal to compute tax on tax. I had this discussion with the Ohio Dept of Taxation and they agreed with my calculations. Also, security deposits are non-taxable whether capitalized or not as they are not considered part of the tax base. Acquisition fees and doc fees are, of course, part of the tax base and, therefore, taxable. Ohio is very specific on what is and what isn't taxable. So it is very important for dealers to seperate taxable items from non-taxable items. Luxury tax, of course, is no longer an issue.

    The first thing one must do is calculate the taxable payment ($329.77) by modifying the money factor formula to account for the fact that the first payment is going to be capped. Next, compute the sales tax: 6.00% x 35 x $329.77 = $692.52. So, why multiply by 35 if it's a 36 month lease? Because the payment already captures the first payment since it's being capped. Finally, determine the monthly lease payment by capping the tax and security deposit.

    I've developed algorithms to make these calculations. Being both a mathematician and an actuary, I'm more than comfortable with my calculations.

    John
    Medina, Ohio
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    delta737hdelta737h Member Posts: 626
    Volvomax,

    You would be correct IF I weren't capping the first payment.

    The problem arises when you put that $1,361.75($1481.75-$120) into the lease. Whatever is in the cap cost IS taxable. doesn't matter if it is trade inequity, a finders fee, a broker fee, or a tax. It IS taxable
    So, adding that money to the cap cost changes the payment to $359.75, plus tax which is $21.59 mo or $777.24,an addition of $85.68


    AND YOU HIT ON THE BIG PROBLEM... FINALLY!!! THANK YOU Volvomax!!! Now, forget about the tax issue and let's focus on rolling the first payment into the lease.

    Here's the problem...

    NOTE that the BASE PAYMENT IS $320.19 using your example. However, you rolled the first of these payments into the lease along with other charges and arrived at a base payment of $359.75. NOTE that the two bases payments do not match. This is what I've been bitching about with Ohio Dealers! The $320.19 payment and the $359.75 do not match and they should just as they do in my post #59. Re-examine my post #59. The rolled in first payment of $361.71 exactly matches the remaining 35 monthly lease payments of $361.71. When I called this problem to the attention of a software vendor, they agreed and promised to amend their software. That was in December 2006. They have yet to do so. They were doing the calculation in exactly the same way you did and it seems to be a very common mistake throughout the leasing industry.

    Okay, now pretend we live in a world of no taxes. Calculate a lease payment when the first payment is to be capitalized. The rolled in first must match the remaining payments. The only way to calculate this is to modify (use some algebra) the money factor formula.

    I hope I'm not coming off as a pompous [non-permissible content removed] but, if I am, please forgive me. This has been an on-going problem in Ohio for a very long time.

    John
    Medina, Ohio
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    delta737hdelta737h Member Posts: 626
    Okay, Brent, I've located the relevant link...

    http://tax.ohio.gov/divisions/sales_and_use/documents/LeaseComboRev0306_002.pdf

    Check out Q14) at the very bottom of P.6 in this PDF document.

    John
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    kyfdxkyfdx Moderator Posts: 239,572
    ...to NOT capitalize the first payment?

    Now, I'll admit to not perusing the whole post, but isn't that where the discrepancies come in?

    There are only a few states that collect tax the way Ohio does (NJ and NY come to mind). If that is the only problem with the lease tax, making the first payment would seem to be an easy solution.

    At least, easier than trying to get everyone to fix their software. :)

    regards,
    kyfdx

    Edmunds Price Checker
    Edmunds Lease Calculator
    Did you get a good deal? Be sure to come back and share!

    Edmunds Moderator

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    british_roverbritish_rover Member Posts: 8,502
    way I have ever seen land rover do a sign and drive lease is with a first payment waiver. Whatever the first payment comes to be Land Rover just waives is. There is a form you fill out and send it off with the lease package.
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    subearusubearu Member Posts: 3,613
    That's how I'm familiar with it too, at least with my recent S40 lease. 'Course, I'm in a state where the tax is applied on each monthly payment, nothing complicated there.

    -Brian
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    volvomaxvolvomax Member Posts: 5,238
    The reason the base payments don't match is because you increased the cap cost to cover the cost of those fees.

    I agree that ordinarily a tax can't be taxed twice,UNLESS you increase the cap cost to pay for it.
    Frankly,there is no mechanism to determine which addition to the cap cost is taxable,and which isn't.
    It is just assumed that they all are.
    The reason I added the first payment to the cap cost was because there was no indication that it was being waived.
    MOSR "Sign and Drives" really aren't. The 1st payment and fees simply get added to the cap cost,which makes less than a good deal. Since that first payment increases the cap cost,the payment DOES go up. There just isn't any other way to do it.
    The BEST thing to do ALWAYS is to pay the front fees in your lease,then you don't have to worry about this.
    NEVER EVER EVER roll anything into your lease.
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    delta737hdelta737h Member Posts: 626
    kyfdx,

    If I were a software developer, I would want my software to perform flawlessly. It would also have to be flexible to the extent that if a customer wanted to cap x payments, my software would correctly compute the remaining payments so that ALL payments are identical including those that are capped. In fact, I have created such a program using a TI-84 graphics calculator. It actually outperforms most leasing software packages in terms of both accuracy and flexibility.

    Given that the first payment is capped, most packages compute the payment in two stages...

    1st stage- compute the payment to be capped using the money factor formula in the normal way.

    2nd stage- use the payment from the 1st stage as an amount financed and compute another payment usingthe mnoey facot formula.

    This procedure is flawed. The problem is that the payments from the 1st and 2nd stage don't match as they should. This seems to be an industry wide problem. So, do the right thing and fix the program so that ALL payments are identical. There really is no rocket science involved. If you look at my post #58, you'll see that the first payment of $361.71 is capped but it also equals all the remaining payments as it should. I only know of one developer that does it correctly and that's LeaseLink.

    Customers have the right to expect that their payments will be computed correctly and shouldn't have to make the first payment upfront if they'd rather roll it into the lease.

    If I were those software vendors, I would feel very uncomfortable knowing that my software contains flaws. One software vendor agreed with my calculations and said they would amend their software. They haven't done it yet and that was 10 months ago.

    John
    Medina, Ohio
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    delta737hdelta737h Member Posts: 626
    Volvomax,

    The reason the base payments don't match is because you increased the cap cost to cover the cost of those fees.

    I don't think you looked at my post #58 carefully. If you did, you would see that the capped payment matched all the remaining payments.

    My complaint is that nearly everyone in the leasing industry is incorrectly computing payments when the first is capped; creating a mismatch. There's nothing wrong with my calculations. It's the industry that's screwing up.

    I agree that ordinarily a tax can't be taxed twice,UNLESS you increase the cap cost to pay for it.

    In Ohio, if you cap the tax, you can't tax the resulting payment (see my previous post #67). To reiterate, in Ohio you must seperate the taxable from the non-taxables. The $329.77 was calculated based on only the taxable items (e.g., the $595 acquisition fee).

    Frankly,there is no mechanism to determine which addition to the cap cost is taxable,and which isn't.

    Sure there is. You simply identify those items that are non-taxable and those that are taxable. For instance, in post #58, the following capped items are non-taxable in Ohio...

    The $361.71 payment
    The $375.00 security deposit
    The $691.52 state sales tax

    Only the $329.77 payment is taxable and that already captures the $595 acquisition fee. So, in Ohio, the total sales tax liability is 6% x 35 x $329.77 = $691.52.

    The reason I added the first payment to the cap cost was because there was no indication that it was being waived.

    I can't imagine any situation in which the first payment is waived unless there is a sales promotion. Otherwise, you're ALWAYS going to pay the 1st payment whether you pay it up front or; you cap it. Either way, you're paying it.

    MOSR "Sign and Drives" really aren't. The 1st payment and fees simply get added to the cap cost,which makes less than a good deal.

    It is a Sign and drive lease. Sign and drive means you sign, get the keys, and drive off. You haven't paid one penny up front because all the fees, 1st payment, etc are being capitalized over the term of the lease; so, there is nothing to pay up front. That's what sign and drive means.

    Since that first payment increases the cap cost,the payment DOES go up. There just isn't any other way to do it.

    NO it doesn't and YES there is.

    Let me explain using a simple example and pretend there are no taxes. So, let's consider the following example...

    Sell Price (S) = 30,000

    Acq. Fee (A) = 595

    Cap Reduction (C) = 0

    Money Factor (F) = 0.00150

    Residual Value (R) = 18,000

    Term (T) = 36 months

    Let P = Base Payment

    Money Factor Formula:

    P = F x (S + A + P + R) + (S + A + P - R)/T... REMEMBER, we're rolling P into the lease and so it is a financed amount.

    Solving this equation for P, we get...

    P = [FT(S + A + R) + (S + A - R)]/[T(1 - f) - 1]

    Replacing the variables with their assigned values above, one obtains

    P = 435.50

    Check:

    P = 0.00150 x (30,000.00 + 595.00 + 435.50 + 18,000.00) + (30,000.00 + 595.00 + 435.50 - 18,000.00)/36

    = 435.50

    So, yes, there is a way to do it as I've just illustrated. The capped payment must match all remaining payments.

    NEVER EVER EVER roll anything into your lease

    NEVER say NEVER. What if the cost of money (money factor) is equivalent to, say, 1.5% and your money market account pays 5.5%??? Seems to me that the financially prudent thing to do is to invest the 2 or 3 grand that you might pay up front into the 5.5% money market account. You can create an annuity from this to subsidize the lease payments if necessary. I know it's a matter of individual preference but sometimes the circumstances require prudent financial decision-making. Sill, individual preferences usually override and it's hard to argue with one's preference.

    John
    Medina, Ohio
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    subearusubearu Member Posts: 3,613
    Maybe a lot of the software packages haven't bothered with capping the first payment because it isn't that common? Most leases want TTL, deposit, and 1st payment (sometimes even a down payment). For example, look at the Saturn lease ad on the left (at least on this particular page it is showing). It is a $249/month 39 month lease with $2,345 due at signing. So, nearly $2k (taking out TTL and 1st payment) is fees and extra $ down.

    In my case, Volvo was subsidizing the heck out of their lease plans last month with their sign & drive thing. Plus, if you took the lease to a bank instead of Volvo finance, you got more incentives to reduce the cap. On my S40, the MSRP was $35k but cap was $26k. Then the sign & drive waived the first payment (dealer cash perhaps?), all I paid was title and license of $130. Only making 35 payments of $460, which includes WI 5.5% tax.

    If they rolled the first payment into the cap, frankly I can't say it matters to me.

    -Brian
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    delta737hdelta737h Member Posts: 626
    Maybe a lot of the software packages haven't bothered with capping the first payment because it isn't that common?

    Brian, you're absolutely right. However, software programs should still allow for the possibility of capped payments because they do occur regardless of how frequent. It's probably equally as rare that manufacturer's like Volvo will subvent lease rates and provide incentives so that upfront costs are minimal. It's more often the case that upfront lease costs will be between $1,000 and $3,000.

    Capitalizing upfront costs is attractive especially when the cost of money is very low when compared with savings rates or opportunity rates for investment.

    John
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    volvomaxvolvomax Member Posts: 5,238
    John,
    i do hear what you are saying.
    Sadly however,you are wrong.
    Now maybe Ohio is different,but in any other state that I am aware of,anything in the cap cost is taxable.
    The bottom line is, there really is no way for the state to know which items are taxable and which aren't.
    No mechanism exists that I am aware of, to make this known.
    Frankly,such a system would probably be open to abuse.
    Bottom line,the lease market functions the way it does,not the way you want it to.
    If it bothers you that much,don't lease the car,just buy it.
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    delta737hdelta737h Member Posts: 626
    volvomax,

    I wish I were wrong so it could be real easy for all concerned. But, unfortunately, I'm not wrong.

    If it bothers you that much,don't lease the car,just buy it.

    Like Leonardo DiCaprio said in the movie Titanic when Rose was about to jump off the ship...

    "I can't, I'm too involved now."

    I'm actually in the process of writing a leasing textbook for McGraw Hill and so there is much more involved here than the issue of whether or not I sould lease. This is a fairly major under taking that requires a lot of research and there is an awful lot of industry critiqueing and scrutiny taking place.

    My example is for Ohio only. It may apply to a few other states as well.

    Your statement:

    The bottom line is, there really is no way for the state to know which items are taxable and which aren't.

    Just doesn't make any sense to me at all. You should be able to break down a lease and determine which items are taxable and which ones aren't according to state mandates or guidelines. In fact, a the consumer has the constitutional right to know which items are taxable. For some, the tax may be tax deductible.

    In Ohio, it's crystal clear. All any state needs to do is provide either a list of taxable items or; provide the dealer with definitive guidelines. Ohio provides a fairly exhaustive list that's fairly cut and dry. Besides, there just aren't that many items involved in a consumer retail lease transaction unless you're getting involved with commercial heavy equipment leases.

    John
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    british_roverbritish_rover Member Posts: 8,502
    Man wait until you run across a leasing company that rolls your property tax into the lease payment like Land Rover does.

    The property tax is taxed at what ever sales tax is because it is part of the lease payment. That is just the way it is and there is no way around it. I have a letter from the CT dept of revenue to back me up the one time a year I have someone freak out about paying 6 percent sales tax on 50, 60, 70 or 80 bucks a month for the life of the lease.

    You will just freak after you see that.
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    delta737hdelta737h Member Posts: 626
    brit,

    I'm not challenging the tax as long as it is applied according to state laws; good or bad. Fairness is a separate issue that must be addressed with the state. I'm challenging the methodology used to compute lease payments in those instances where the 1st payment is capitalized. I'm concerned that the resulting payments don't reflect the correct tax consistent with state tax laws. The tax laws are a given; it's the existing computational methods that are at issue.

    For instance, I can guarantee that very few Ohio dealerships (if any) will compute the same payment ($361.71) and sales tax ($692.52) that I did in my post #58. And so, they need to review their computational methods.

    John
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    volvomaxvolvomax Member Posts: 5,238
    John,
    For better or worse,this IS the bottom line.
    Leasing of cars is highly regulated by the state.
    IF there was a real issue,it would be addressed.
    Since the state of Ohio,and every other state that I am aware of allow these contracts to be written, then they are perfectly legal.
    I'm sorry that you have a difference of opinion on this,but that is really all you have.
    Look at a lease contract. There is nowhere on there where there is a lace to really break down the cap cost and determine what is taxable and what isn't.
    The STATES are the ones who decide the language on the contracts.
    If you are going to expect a dealer anywhere to see things your way,you are going to have a VERY long wait.
    Dealers each do thousands of leases every year,all done this way. They ONLY way this will change is if the state decides to make it change,and that is unlikely because inflated cap costs mean more tax revenue.
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    delta737hdelta737h Member Posts: 626
    volvomax,

    If leases are being improperly computed, whether it's the payments, taxes, or othewrwise; we can always institute change. I have successfuly done it at the federal level with regard to the FRBB's Regulation Z.

    Lease disclosures (Reg. M) are federally manadated. The language of the contracts, and I'm not a lawyer, can't conflict with state law in most instances if not all.

    I was told by the Ohio Sales Tax Division to provide an addendum to the lease contract showing the tax calculations. There is absolutely no reason why a dealership should resist.

    "IF there was a real issue,it would be addressed.
    Since the state of Ohio,and every other state that I am aware of allow these contracts to be written, then they are perfectly legal"


    Perhaps they're not aware that there IS a problem and, hence, an unresolved issue. I'm not questioning the legality piece, I'm questioning the appropriateness of the calculations; they're clearly flawed in some instances and is the reason why Ohio is agreeable to seeing the calculations. At least the person I spoke with realizes that there is a problem.

    "I'm sorry that you have a difference of opinion on this,but that is really all you have."

    We're not talking opinion, we're talking fact. The beauty of mathematics is that it has no use for opinions; only facts. And so, I can mathematically prove that their calculations are flawed. And, when something is flawed, you usually do your very best to fix it.

    "If you are going to expect a dealer anywhere to see things your way,you are going to have a VERY long wait."

    The bottom line is that dealerships want to sell cars. I think most will be amenable and cooperate with me.

    John
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    volvomaxvolvomax Member Posts: 5,238
    Good Luck John.
    The FACT is that the present system works and is accepted by the federal Gov't and all 50 states,plus DC.
    Are you going to tell me that you alone have determined that there is a problem that needs correcting?
    As those of us who do this everyday have tried to tell you, you are just flat wrong.
    Anyway, let me know how you make out.
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    delta737hdelta737h Member Posts: 626
    volvomax,

    "Are you going to tell me that you alone have determined that there is a problem that needs correcting?"

    It's not rocket science and to any mathematician, it's blatantly obvious. In fact, my papers have gone through the rigors university peer review and have received favorable commentary.

    "As those of us who do this everyday have tried to tell you, you are just flat wrong."

    Just because so many of you do this everyday doesn't make it worthy of the Good HouseKeeping Seal of Approval. Not to be pompous, but I do math for a living; you guys don't. How on earth can you arrive at a rolled in payment that is different from all the remaining payments??? I went through this exercise in a previous post. And, either you see it or you don't. If only every car leasing consumer knew what I knew!

    Anyway, thanks for wishing me luck.

    John
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    volvomaxvolvomax Member Posts: 5,238
    John,
    I sell cars for a living,you don't.
    This is a non issue,except to wonks like you.
    More to the point,there isn't any way to do what you want to do.
    As with alot of industries,there are alot of things about the car business that don't make any sense to the people who aren't involved in it.
    As they say, a little knowledge is dangerous.
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    delta737hdelta737h Member Posts: 626
    volvomax,

    "I sell cars for a living,you don't."

    And I do math and write for a living.

    "This is a non issue,except to wonks like you."

    Of course it's a non-issue for you because you can't comprehend what I'm talking about... if you could, we wouldn't be having this dialogue.

    "More to the point,there isn't any way to do what you want to do."

    You're being very presumptuous. You don't know that and what's more, you have no idea what I'm capable of accomplishing. Don't underestimate me; it's a bad idea!

    I can spot incorrect mathematical calculations in a heartbeat. It doesn't matter one hoot whether it's the automotive industry, the aerospace industry (my specialty), real estate, or some area of medical research.

    "As they say, a little knowledge is dangerous."

    Yup and you're industry is living proof and so guys like me have to fix things either because because you can't or won't. Afterall, it's a non-issue; right?

    John
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    tidestertidester Member Posts: 10,059
    You really do need to lighten up a bit!

    Of course it's a non-issue for you because you can't comprehend what I'm talking about ...

    That's a bit rude and obnoxious. It's a nonissue not because people cannot comprehend it. It's a nonissue because it is standard practice and beyond the control of salespeople and just about everyone else.

    A case in point is the infamous Rule of 78 for calculating interest refunds on early termination of installment loans. It always favors the lender. The correct math has always been there but for the precalculator world it was more convenient to invoke the rule than to get it right. It stuck and was standard practice for centuries.

    Why did it (virtually) go away only about 10 years ago? Because it finally caught the attention of Congress - people who COULD DO something about it. Until that happens in the case of reserves and other esoterica, we're stuck with it and it benefits no one for the professional mathematician to insult the intelligence of the nonmathematician.

    We're all bright people here and there's no need to put anyone down for a perceived lack of competence in your discipline.

    tidester, host
    SUVs and Smart Shopper
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    delta737hdelta737h Member Posts: 626
    "It's a nonissue because it is standard practice and beyond the control of salespeople and just about everyone else."

    That's a lot of baloney. People have to take responsibility for their profession and must be held to high accountability standards. They ought to know the correct way to do the calculations and, collectively, have the POWER to change it if they are inclined to do so. I'm sick and tired of an American society that refuses to be held accountable and responsible. If your business requires calculations; you darn well better know how to do them correctly. Your statement is a very poor excuse.

    A standard practice? How do you know it's standard practice? Can you provide evidence? There are lease software developers out there that correctly calculate leases in the same way that I do. Granted, they're probably in a minority but they do exist.

    The developer if LeaseWizard said that my calculations are very "compelling". I'm sure that if you read one of my papers where I proved by calculations both algebraically and using finite difference equations; you would have no choice but to agree.

    The Rule of 78's should have been outlawed years ago. I believe it's still around and the reason why it's still around is because no one holds the banking industry accountable (outside of the Feds/state). Neither the FRBB or the Comptroller of Curreny has outlawed its use. However, it may be prohibited by some states. We live in a society where the moral compass of legislators and watch dogs is in need of calibration. As long as it's a money maker, it's likely to be around for a while. Hail to the almighty dollar and the heck with academics!

    Ohio Savings Bank is currrently involved in a large class action lawsuit. I wonder who could have triggered that lawsuit?

    Now, go ahead and get out your kirby just because I disagreed with you.
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    tidestertidester Member Posts: 10,059
    you would have no choice but to agree

    The only agreement that concerns me is what you agreed to when you signed on and as expressed in our Member Agreement; to wit:

    "if you wish to take issue with the statements of other Members or the Hosts, please engage in healthy, mature debate and not immature behavior or name-calling."

    If you have any questions regarding the above comments then please take it to email.

    The point is just keep it on topic, respectful and civil and we'll all be happy. :)

    tidester, host
    SUVs and Smart Shopper
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    lewielewlewielew Member Posts: 7
    Can you give me approx LEASE payments for the following cars below. Is it advantageous to go longer term or short?



    all with 48 mo w/15 miles





    a. 2008 Chevrolet Impala LS-

    msrp 22,400, invoice 21,900, new car book 21,540

    Rebates to be used as down payment

    2,000 cash rebate



    b. 2008 Cadillac CTS

    msrp 35,040, invoice 32,767, new car book 34,853

    no incentives

    c. 2008 Dodge Charger SXT,

    msrp 26385.00, invoice 24,545, new car book 25,540

    2000 lease money back that i'll use for down payment.

    Where can I find out what cars are in high demand?

    In your opinion what should I pay for each?



    Thanks

    Lew
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    Kirstie_HKirstie_H Administrator Posts: 11,150
    Hi lewielew,
    For info about specific vehicles, you'll want to visit our Lease Questions discussion for each of them.

    There's a "search forums" box on the right. If you enter the word "lease" plus the name of each make you're looking at, you'll get a list of discussions relevant to leasing those vehicles.

    MODERATOR /ADMINISTRATOR
    Need help navigating? kirstie_h@edmunds.com - or send a private message by clicking on my name.
    Share your vehicle reviews

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    mig42mig42 Member Posts: 13
    I received the following figures for a GMC Acadia over the weekend but when doing the calculations myself I come up with a higher monthly payment.

    here's the figures:-

    * MRSP $33,150
    * Selling Price incl rebates $31858
    * 48 month lease/12000 miles
    * Residual 55%
    * Money Factor 0.00379

    Dealership quoted lease payment as $439.89
    Based on the above figures I calculated the monthly payments to be $500

    Can anyone confirm which is correct?

    Thanks!
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    tidestertidester Member Posts: 10,059
    You should check that with our Calculate Your Own Lease Payment .

    tidester, host
    SUVs and Smart Shopper
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    delta737hdelta737h Member Posts: 626
    Is the fund provider GMAC? If so, they don't use a money factor. They use an interest rate to calculate the payment and discount the residual one month. Did you convert their interest rate to a money factor? If so, your payment will be off a bit. If you would like, I can detail exactly how the payment is calculated
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    tidestertidester Member Posts: 10,059
    They use an interest rate to calculate the payment and discount the residual one month.

    That's easy enough to handle: Money Factor = APR/2400

    tidester, host
    SUVs and Smart Shopper
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    delta737hdelta737h Member Posts: 626
    "That's easy enough to handle: Money Factor = APR/2400 "

    That's only an estimate. Consider the following hypothetical GMAC Lease...

    Adj Cap = 30,000
    Residual = 18,000
    Int rate = 4.8%
    Term = 36 months
    Payment = 430.71

    Converting 4.8% to a MF... 4.8/2400 = 0.00200

    MF Payment = 429.33

    It's very close. Payments based on a MF conversion will always understate the interest rate payment just a tad. :)
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    tidestertidester Member Posts: 10,059
    MF conversion will always understate the interest rate payment just a tad.

    Now we know just exactly how big a tad is! :)

    tidester, host
    SUVs and Smart Shopper
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    lmpracetechlmpracetech Member Posts: 24
    bankrate.com
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    rjcarterrjcarter Member Posts: 2
    I am in the market for leasing a car and I was looking for resources to finding out how each state calculates lease payments. I am aware of two methods. One pay the sales tax on each monthly payment. The other is pay the sales tax upfront. However, in trying to find the answers. I stumbled across a scenario and I am trying to validate it.

    I buy the car in VA and pay the sales tax upfront. I then move to GA, which we are planning to do, then I pay sales tax on my car payment in GA. It seems to me I am now paying tax twice. Once in VA when I initiated the lease and then each month while the car is registered in GA. Is this scenario valid?

    Not to mentioned I saw something about a tax from VA if you move the vehicle out of state permenatly.
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    dwynnedwynne Member Posts: 4,018
    VA collects tax on the lease up front, but I think it is a "modest" 3% :D . AFAIK you are hosed - since your lease bank will automatically change your account and add GA tax once they know you have moved to that state. In some states, like FL, you can apply to them to ask them to credit you for tax paid (in advance) in another state. I have no idea if GA has such a thing in place or not, but the lease bank is probably still going to automatically add tax to the payment anyway. You could also try applying to VA for a refund of the tax, but I would think that will not be anything easy to do.

    Best advice is to wait until you are in GA to lease the car or use a GA address to lease, title, and tag the car.

    Dennis
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    kyfdxkyfdx Moderator Posts: 239,572
    Exactly what he said... ;)

    If you pay tax upfront in one state, then move to a state that taxes the monthly payment, then you are out of luck..

    Edmunds Price Checker
    Edmunds Lease Calculator
    Did you get a good deal? Be sure to come back and share!

    Edmunds Moderator

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    civhybrid07civhybrid07 Member Posts: 9
    Edmunds Editor/Host:

    I used the Edmunds lease formula found at
    link title

    I used this formula to build an Excel spreadsheet. I tested the spreadsheet by entering the sample figures provided on that page and confirmed that my spreadsheet was accurate.

    Unfortunately when I presented by spreadsheet and explained the formula to someone that works in my company's equipment leasing group he said that MSRP is not part of the lease formula because the residual amount is calculated off of the cap cost not MSRP. He said he doesn't even need the MSRP to calculate a lease.

    I searched the web and found calculators using both methods. They both can't be right.

    Can you provide some sort of proof or explanation that your calculation methodology is correct before I attempt to use my spreadsheet to lease a car?

    Thank you very much.
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    volvomaxvolvomax Member Posts: 5,238
    Obviously, equipment leasing is different from car leasing.
    ALL banks and auto lease co's use MSRP to calculate the residual.
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    kyfdxkyfdx Moderator Posts: 239,572
    Yeah.. what he said!

    Edmunds Price Checker
    Edmunds Lease Calculator
    Did you get a good deal? Be sure to come back and share!

    Edmunds Moderator

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    stunatu22stunatu22 Member Posts: 14
    hey golic

    I know it's 2 1/2 yrs later but ...do you still have the spreadsheet to Calculate Monthly Lease Payments?? If so - could you e-mail it to me at stunatu@gmail.com?
    thanks a million
    Stu
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