Leasing Knowledge Check

audi_fangirl · August 2018

Hello Experts! I've been on both ends of the leasing and financing spectrum. Based on experience, I've come to understand that as long as the money factor and residual values are to good and you do your calculations accordingly, it would save money to lease a car, even when you intend to keep it in the long term. (And even if dealerships balk at giving you MF, you can kind of guesstimate and plug in numbers into the many leasing calculators out there, using the very information here and the monthly given to you by the dealership.) For example, if I wanted to buy an Audi right now, but can't come up with a big enough down payment to afford the financing payments, if they have a great leasing program, I could conceivably lease first, then pay off at lease end (or refinance mid-lease).

Let's say there's a car I want that costs $40K. Even if I could negotiate the sales price to be $36K, with the ghastly car loan rates right now, my payments at 2.99% APR for 60 months would be $647. I find out Audi has a leasing program with a base MF of 0.00035 and residual value of 57% for 36 months. That MF corresponds to an ultra low 0.84% APR. So doing the math, I calculate to lease the car for 36 payments at $407 (with MSRP at $40K and sales price of $36K), which totals $14,652. Then when the lease ends, the residual comes out to $22,800. So I can then finance that amount for 2.74% APR for 48 months at $502, which totals to $24,096. (Assuming rates haven't changed in 3 years.) After a total of 7 years of payments, that comes out to $38,748. Now, if I had financed at 2.99% APR for 60 months of $647 right off the bat, my total payments come out to $38,820. So I actually saved a little money in the end, and I lowered my payments from what it could have been if I financed. I also stretched payments for two extra years, but that's not a bad trade-off. Again this is assuming your intention is to own. This does NOT account for resale value at any point in time if you wanted to sell. There's also the added bonus of the "flexibility" of getting out after 3 years if you're unhappy with the car.

So this is my understanding of how leasing could be better than financing. Can one of you experts please look over my logic and let me know if I missed anything?

Michaell · August 2018

audi_fangirl said:
Hello Experts! I've been on both ends of the leasing and financing spectrum. Based on experience, I've come to understand that as long as the money factor and residual values are to good and you do your calculations accordingly, it would save money to lease a car, even when you intend to keep it in the long term. (And even if dealerships balk at giving you MF, you can kind of guesstimate and plug in numbers into the many leasing calculators out there, using the very information here and the monthly given to you by the dealership.) For example, if I wanted to buy an Audi right now, but can't come up with a big enough down payment to afford the financing payments, if they have a great leasing program, I could conceivably lease first, then pay off at lease end (or refinance mid-lease).

Let's say there's a car I want that costs $40K. Even if I could negotiate the sales price to be $36K, with the ghastly car loan rates right now, my payments at 2.99% APR for 60 months would be $647. I find out Audi has a leasing program with a base MF of 0.00035 and residual value of 57% for 36 months. That MF corresponds to an ultra low 0.84% APR. So doing the math, I calculate to lease the car for 36 payments at $407 (with MSRP at $40K and sales price of $36K), which totals $14,652. Then when the lease ends, the residual comes out to $22,800. So I can then finance that amount for 2.74% APR for 48 months at $502, which totals to $24,096. (Assuming rates haven't changed in 3 years.) After a total of 7 years of payments, that comes out to $38,748. Now, if I had financed at 2.99% APR for 60 months of $647 right off the bat, my total payments come out to $38,820. So I actually saved a little money in the end, and I lowered my payments from what it could have been if I financed. I also stretched payments for two extra years, but that's not a bad trade-off. Again this is assuming your intention is to own. This does NOT account for resale value at any point in time if you wanted to sell. There's also the added bonus of the "flexibility" of getting out after 3 years if you're unhappy with the car.

So this is my understanding of how leasing could be better than financing. Can one of you experts please look over my logic and let me know if I missed anything?

A few points:

1. That's a big assumption that used car rates will be static in three years. Money is getting tighter now, and I don't expect rates to stay flat for long. We are already seeing increases in the base MF used by many brands, and new and used car loan rates are rising, as well.
2. Have you factored in sales tax into your calculations? Some states tax the entire amount of the selling price, even if you lease. You don't mention where you live, so that is something to consider.
3. At the end of the lease, you have to buy the car at the residual value. What if, in your example, clean 3 year old A4's are selling for an average of $20,500? Would you willingly pay an extra $2300 to buy your car? Plus, you'll pay sales tax and interest on that extra money when you finance it.
4. Another risk associated with leasing is if your life circumstances change. New job, on the other side of town, and your commute distance just doubled? Not good when you have a mileage restriction on a lease, and you don't like the car and want to return it at lease end. Hello, mileage penalties!
5. There are costs associated with a lease you don't have when you finance - acquisition fee ($895 for Audi), and, a new one, a purchase fee imposed by the bank if you decide to keep the car at lease end.
6. I also suggest you re-run your numbers using an 84 month purchase plan, so you're comparing apples to apples in terms of how many payments you are making, and the total cost to own.

In my household, we have one car financed and the other that is leased. My wife's Outback is financed, because our intention is to keep it for 10 years, at which point it will have maybe 75,000-80,000 miles on it and still be worth a bunch (because, Colorado). My Jetta is leased, since I can keep the payments low and at the end of the lease term, I can get something new with better tech and other features, for (I hope) roughly the same payment.

We always recommend that if your intention is to keep the car longer than the lease term, buy it outright from the get go. But, to each his or her own.

audi_fangirl · August 2018

Michaell said:

audi_fangirl said:
Hello Experts! I've been on both ends of the leasing and financing spectrum. Based on experience, I've come to understand that as long as the money factor and residual values are to good and you do your calculations accordingly, it would save money to lease a car, even when you intend to keep it in the long term. (And even if dealerships balk at giving you MF, you can kind of guesstimate and plug in numbers into the many leasing calculators out there, using the very information here and the monthly given to you by the dealership.) For example, if I wanted to buy an Audi right now, but can't come up with a big enough down payment to afford the financing payments, if they have a great leasing program, I could conceivably lease first, then pay off at lease end (or refinance mid-lease).

Let's say there's a car I want that costs $40K. Even if I could negotiate the sales price to be $36K, with the ghastly car loan rates right now, my payments at 2.99% APR for 60 months would be $647. I find out Audi has a leasing program with a base MF of 0.00035 and residual value of 57% for 36 months. That MF corresponds to an ultra low 0.84% APR. So doing the math, I calculate to lease the car for 36 payments at $407 (with MSRP at $40K and sales price of $36K), which totals $14,652. Then when the lease ends, the residual comes out to $22,800. So I can then finance that amount for 2.74% APR for 48 months at $502, which totals to $24,096. (Assuming rates haven't changed in 3 years.) After a total of 7 years of payments, that comes out to $38,748. Now, if I had financed at 2.99% APR for 60 months of $647 right off the bat, my total payments come out to $38,820. So I actually saved a little money in the end, and I lowered my payments from what it could have been if I financed. I also stretched payments for two extra years, but that's not a bad trade-off. Again this is assuming your intention is to own. This does NOT account for resale value at any point in time if you wanted to sell. There's also the added bonus of the "flexibility" of getting out after 3 years if you're unhappy with the car.

So this is my understanding of how leasing could be better than financing. Can one of you experts please look over my logic and let me know if I missed anything?
A few points:

1. That's a big assumption that used car rates will be static in three years. Money is getting tighter now, and I don't expect rates to stay flat for long. We are already seeing increases in the base MF used by many brands, and new and used car loan rates are rising, as well.
2. Have you factored in sales tax into your calculations? Some states tax the entire amount of the selling price, even if you lease. You don't mention where you live, so that is something to consider.
3. At the end of the lease, you have to buy the car at the residual value. What if, in your example, clean 3 year old A4's are selling for an average of $20,500? Would you willingly pay an extra $2300 to buy your car? Plus, you'll pay sales tax and interest on that extra money when you finance it.
4. Another risk associated with leasing is if your life circumstances change. New job, on the other side of town, and your commute distance just doubled? Not good when you have a mileage restriction on a lease, and you don't like the car and want to return it at lease end. Hello, mileage penalties!
5. There are costs associated with a lease you don't have when you finance - acquisition fee ($895 for Audi), and, a new one, a purchase fee imposed by the bank if you decide to keep the car at lease end.
6. I also suggest you re-run your numbers using an 84 month purchase plan, so you're comparing apples to apples in terms of how many payments you are making, and the total cost to own.

In my household, we have one car financed and the other that is leased. My wife's Outback is financed, because our intention is to keep it for 10 years, at which point it will have maybe 75,000-80,000 miles on it and still be worth a bunch (because, Colorado). My Jetta is leased, since I can keep the payments low and at the end of the lease term, I can get something new with better tech and other features, for (I hope) roughly the same payment.

We always recommend that if your intention is to keep the car longer than the lease term, buy it outright from the get go. But, to each his or her own.

Thank you, Michaell! These are all very fair points. Points #1 and #4 are very important considerations. For Point #2, I live in CA, so I know during the lease I'm only taxed on the portion of the car I use. For Point #3, I'm fairly certain the RV of the car I want will actually be less than it's value after 3 years, based on data now for identical vehicles of the same age. Point #5 is accounted for. As suggested in Point #6, I re-ran the numbers for an 84-month financing term. Since the APR increases another point to 3.99%, the monthly would still be fairly high, and at the end of the term, my finance cost will be almost $10K more than if I leased for 3 years and financed the remaining 4 years. Of course, to be fair, the loan rates I've used in all my examples are the standard from credit unions; the manufacturer could have lower rates available. Also doing an 84-month term does allow me more flexibility if I need to get out of the car sooner than 3 years. Lastly, I could conceivably refinance if rates come down in the coming years.

Thank you again. You have helped to expand my perspective on this subject.

Desi Bravo · August 2018

Hi, I leased my 2015 Audi A8 Quattro 3.0 and my lease ended June 23, 2018. In July I decided to extend my lease for 6 months until the 2019 Audi A8 is released this fall.
However, I can still purchase at residual value if I don't like the 2019 Audi A8 or too expensive to own. Upon purchase what am I looking at for the purchase at the new extended lease end being this December 2018?

Desi Bravo · August 2018

Whats is the Residual value and money factor at NYC for 2019 Audi A8 V6 3.0 Quattro.
10,000 miles annual
36 months lease.
Incentives and rebates.
Thanks.

kyfdx · August 2018

Desi Bravo said:
Hi, I leased my 2015 Audi A8 Quattro 3.0 and my lease ended June 23, 2018. In July I decided to extend my lease for 6 months until the 2019 Audi A8 is released this fall.
However, I can still purchase at residual value if I don't like the 2019 Audi A8 or too expensive to own. Upon purchase what am I looking at for the purchase at the new extended lease end being this December 2018?

You are going to have to ask Audi Finance for the payoff. We have no way of knowing that.

kyfdx · August 2018

Desi Bravo said:
Whats is the Residual value and money factor at NYC for 2019 Audi A8 V6 3.0 Quattro.
10,000 miles annual
36 months lease.
Incentives and rebates.
Thanks.

2019 A8 lease programs aren't out yet

Desi Bravo · August 2018

kyfdx said:

Hi, I leased my 2015 Audi A8 Quattro 3.0 and my lease ended June 23, 2018. In July I decided to extend my lease for 6 months until the 2019 Audi A8 is released this fall.
However, I can still purchase at residual value if I don't like the 2019 Audi A8 or too expensive to own. Upon purchase what am I looking at for the purchase at the new extended lease end being this December 2018?

You are going to have to ask Audi Finance for the payoff. We have no way of knowing that.

Sorry for that the payoff quote would be 33,438.

kyfdx · August 2018

Desi Bravo said:

kyfdx said:

Desi Bravo said:
Hi, I leased my 2015 Audi A8 Quattro 3.0 and my lease ended June 23, 2018. In July I decided to extend my lease for 6 months until the 2019 Audi A8 is released this fall.
However, I can still purchase at residual value if I don't like the 2019 Audi A8 or too expensive to own. Upon purchase what am I looking at for the purchase at the new extended lease end being this December 2018?

You are going to have to ask Audi Finance for the payoff. We have no way of knowing that.

Sorry for that the payoff quote would be 33,438.

I still don't know what it will be in December. You extended the lease. Won't that lower the buyout at lease end?

Desi Bravo · August 2018

kyfdx said:

kyfdx said:

Hi, I leased my 2015 Audi A8 Quattro 3.0 and my lease ended June 23, 2018. In July I decided to extend my lease for 6 months until the 2019 Audi A8 is released this fall.
However, I can still purchase at residual value if I don't like the 2019 Audi A8 or too expensive to own. Upon purchase what am I looking at for the purchase at the new extended lease end being this December 2018?

You are going to have to ask Audi Finance for the payoff. We have no way of knowing that.

Sorry for that the payoff quote would be 33,438.
I still don't know what it will be in December. You extended the lease. Won't that lower the buyout at lease end?

Yes that's the payoff for December 2018.
June 2018 was 38688 then I extended the lease for 6 months June to December.
Payoff for December 2018 is 33438.
Thanks.

kyfdx · August 2018

Desi Bravo said:

kyfdx said:

Desi Bravo said:

kyfdx said:

Desi Bravo said:
Hi, I leased my 2015 Audi A8 Quattro 3.0 and my lease ended June 23, 2018. In July I decided to extend my lease for 6 months until the 2019 Audi A8 is released this fall.
However, I can still purchase at residual value if I don't like the 2019 Audi A8 or too expensive to own. Upon purchase what am I looking at for the purchase at the new extended lease end being this December 2018?

You are going to have to ask Audi Finance for the payoff. We have no way of knowing that.

Sorry for that the payoff quote would be 33,438.
I still don't know what it will be in December. You extended the lease. Won't that lower the buyout at lease end?

Yes that's the payoff for December 2018.
June 2018 was 38688 then I extended the lease for 6 months June to December.
Payoff for December 2018 is 33438.
Thanks.

Then, I don't know what you are asking.

Desi Bravo · August 2018

Just wanted to know if I decide to purchase the vehicle at extended lease end at 33438 being the purchase price with no purchase option fee if there may be any hidden fees that I need to know about prior to purchasing the car? Unless is a straight forward with tax for 60 months? I appreciate for your help.

kyfdx · August 2018

Desi Bravo said:
Just wanted to know if I decide to purchase the vehicle at extended lease end at 33438 being the purchase price with no purchase option fee if there may be any hidden fees that I need to know about prior to purchasing the car? Unless is a straight forward with tax for 60 months? I appreciate for your help.

You should be able to purchase it from AFS for that price. If they make you use a dealer to facilitate the transaction, the dealer could add a fee. That seems like a breach of contract to me, but I've seen it happen with other makes.

But, AFS is under no obligation to offer you financing. Be prepared to have your own financing in place.

Desi Bravo · August 2018

kyfdx said:

Just wanted to know if I decide to purchase the vehicle at extended lease end at 33438 being the purchase price with no purchase option fee if there may be any hidden fees that I need to know about prior to purchasing the car? Unless is a straight forward with tax for 60 months? I appreciate for your help.
You should be able to purchase it from AFS for that price. If they make you use a dealer to facilitate the transaction, the dealer could add a fee. That seems like a breach of contract to me, but I've seen it happen with other makes. But, AFS is under no obligation to offer you financing. Be prepared to have your own financing in place.

Thank you.

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