[ldk2]

Hello All,

I always feel that Car buying is something always close to one's heart, irrespective the number of times we buy them. Its always an experience which all cherish.

The experience of buying and trading/selling a car is much easier here in states compared to our home country and that might be the reason, why I have seen many of my counterparts changing vehicles much frequently (including my self).

usually I tend to hold my vehicles for less than 3yrs and the itch starts from 2yrs into ownership either to upgrade, or to change the vehicle and for that reason always felt leasing is an great option for me.

I don't want to get into Leasing vs Buying and want to keep this post just confined to leasing basics and things that I have learnt over the course of years.

I have seen leasing being discussed on multiple occasions on the forum, however couldn't find dedicated thread to help others who are on edge to take the plunge but unsure of the whole process.

and other big question everyone of us on work visa have in our mind is would I be eligible?. Definitely Yes, It all depends on your visa validity. I have seen users with 22months being approved for 36month lease. It may differ from leaser to leaser and case to case, but the approvals I personally know is for BMW, MB & Volvo (all these 3 leasers approved 36month leases with greater than 22months and less than 36months of remaining validity). Including my self, with Just 28months validity being approved for 36months by BMW.

My intention is to present this out and at the same time learn new things from more experienced users under a single thread, so many users including my self can brace for the next purchases.

Apologies before hand for the long post too.

Without further ado lets dive-in.

Terms to Know in Leasing:

MSRP - The cost of the vehicle
Capital cost - MSRP price after discount
Money Factor - Financing charge
Residual - The value of asset after depreciation
Lease Term - Number of months of lease
Miles - Allowed miles
Down Payment
MSD - Multiple Security deposits
Tax - State Tax
Monthly Depreciation Fee - Asset depreciation value monthly payment
Monthly Lease Fee - Asset monthly financing payment
Monthly Tax - Asset monthly state tax payment
Monthly Lease Payment - Total Monthly lease payment
Acquisition Fee - Lease origination fee
Disposition Fee - End of lease vehicle return fee
Dealer Fee
Government Fee - Registration, License, Titling etc.
Drive Off Payment - Total Payment to take delivery

Rule of thumb for above terms :

MSRP

Its always important to make sure the destination charge is being added into the MSRP of the vehicle. Some dealers tend to remove the destination charge from the MSRP and add it later, usually at the end of the negotiations. If you are unsure, take a look at the window sticker and it always has the total price with destination added in.

Capital cost (MSRP price after discount)

A sales rep and finance manager has many sleeves under them and one things I have learned is never negotiate on the total out the door price or just bluntly say them the monthly Emi you want to stay under. Always negotiate based off the MSRP only.

Reason being there are many other factors which remain constant and no matter what they cant be reduced. (like taxes, gov fees, dealer fees) and you can take a decision on other added services pumped into the invoice.

Money Factor

Money factor is nothing but the APR you are being financed at. This is always set my leasing/Financing company and changes monthly. Its always important to know before hand what the price that has been set by the respective leasing company.

Money factor changes monthly and most of the times the numbers aren't out until 2nd/3rd of each month. Sometimes this changes, sometimes it remain the same as previous month, but its important to keep in mind to never close the deal until you know that months official numbers.

To know the APR to make things easy to understand; always multiply the money factor *2400 this will give the APR your lease is being financed at.

The reason to know official numbers is dealers have a levy from the leasing companies to overcharge and make profit on this. A slight change in this number will result in monthly lease payment to go up significantly.

Another thing to keep in mind is your credit rating. The official numbers published is always for Tier1 credit and during closing if your credit isn't good the leasing/Financing company will give in writing about the same and may charge you either Tier2 or Tier3 rates accordingly. So always make sure to get that document when being charged Tier2/3 rates and to make sure dealer isn't taking an advantage off.

Residual

Residual value is the pre-populated deprecation value of the vehicle at the end of the lease term. This number is always in % and is always set by the manufacturer.

This value changes from month to month and it is always required to know this before hand. As a slight change in this % will result in monthly lease payment to fluctuate a lot.

Lease Term

The number of months you are locked into the lease and bound to make payments.

The sweet spot for most manufacturers is always 36months and for Landover and dodge the sweet spot is 39.

Its always good to calculate if there are any other sweet spots for each model (like 24,36,39,42 months)

Breaking is a lease is not hard as assumed and it requires a little research and patience.

Manufacturers always throw offers to put you in a different car; Like when the market is plagued with excess stock or to take no.1 position or to move crazy numbers (usually during the holiday season). So, its always good to keep an eye on the emails - mainly your promotions section in Gmail as most of them fall there

Miles

Make sure to assess your miles accordingly and don't over think and get the longest miles. Reason being, you can always buy miles in bulk before hand at regular price or at discount prices(getting a discount is not always assured it depends on many factors) however, you can not get money back if you underuse the miles (again if you are going to the same manufacturer at the end of lease, you get some perks for under usage, require little sweet talk with the customer care)

Your residual % is also based on the total number of miles you choose before the lease.

Down Payment

Never ever put money down to make monthly payment affordable. Its always money gone down the drain.

MSD - Multiple Security deposits

Multiple security deposits is the other alternative to go-for instead of down payment. MSD's are returned back to you after the end of lease.

What MSD's does is it reduce your money factor by points. Each manufacturer/leaser has set rules. Like you can put down only this number of MSD's and each MSD reduce the money factor by this many points.

Ex: BMW allows a max of total 7MSD's and each MSD reduce your money factor by 0.00005 points
Lets assume your money factor is 0.00099
you put max 7 MSD's 7*0.00005=0.00035
New Money factor 0.00099-0.00035 = 0.00064
To know the APR 0.00064*2400 = 1.536% is your new APR

MSD's are calculated on your monthly payment and are rounded to the nearest 50. Assume your monthly payment before MSD as $310. You can put down $2100 to reduce your money factor by 0.00035points or 0.84%

Not all manufacturer/leaser provide the option of MSD's.

Tax

Your state tax rate.

Monthly Depreciation

This is nothing but your total borrowed amount divided by lease term before Tax. So always important to know that months official residual value.

Monthly Lease Fee

Lease fee is nothing but the monthly Rent that you are paying to leaser for borrowing the vehicle and money. This isn't a straightforward calculation, as your money factor plays a big role in this. So its always important to know money factor because dealers inflate this to make money.

Monthly Tax

In most of the states Tax is levied on monthly Depreciation and Lease fee. Some states like VA require you to pay taxes on the whole, sale-price of the vehicle upfront. Some states like NJ require you to pay tax upfront, on the amount being borrowed. So check your state rule before taking any decision.

Trading your old car to the respective dealer plays a major factor in such states, as you get a tax bracket and pay a reduced tax based on the Trade amount and New lease amount.


Monthly Lease Payment

Total payment inclusive of Monthly Depreciation + Monthly Lease Fee + Monthly Tax

Acquisition Fee

Is the fee we pay to leaser for originating the lease. This is non-negotiable and remains constant (not like money factor or residual, which changes monthly) and this fee varies across manufacturers/leasers.

Another area where dealers make profit is by inflating this price.

Always make sure to know the official number or for sure we get screwed here.

This fee can be paid upfront or rolled into the amount being borrowed. Later method being a popular one.

Disposition Fee

Fee that we pay the dealer at the end of lease to dispose the vehicle off (again determined by the leaser and remains constant). Usually this is waived off, if we are going to another lease or purchase with the same leaser.

Dealer Fee

Varies from state to state.

Another gray area to make profit.

Government Fee

Fee that are levied for registration, title, etc.

Drive Off Payment

Total Payment to take delivery;
First month payment +
Down Payment +
Upfront fees and Taxes
.

[ldk2]

So, now that we know what the main terms are let see how we can re-search on the vehicle we are interested in.

Best place to know the residual, money factors, acquisition and disposition fee is Edmunds Forums. A simple google search will always show their relevant threads.

Now that we know what the important details are, next thing is to get a base price where we can start the negotiations at. Easy thing is to know the invoice price. Go to Costco auto build out the vehicle and see what the MSRP and Invoice price is and to the difference add any manufacturer offers too and this is the lowest price that you can be happy to close the deal out.

Be-aware; offers from manufacturers always differ w.r.t to Lease and purchase. So make sure to read the disclaimers.

I always use cars.com and Truecar to research prices.

My happy medium always is 12-13% off the MSRP (This is achievable when the model isn't new anymore and people aren't crazy about it aka corvette c8 or Shelby's). I only negotiate, when I am dead fix on the vehicle I want and start the process during last week of the month.

Now that we have all the things needed. next stop is to calculate the prices, even tough there are many calculators out there I use my own spreadsheet to calculate the prices and see which vehicle has more happy medium at what prices and discount. (easy to put all details in one sheet )

Ex: Charger Hellcat Widebody(current month rates )

MSRP = 76965
Capital cost (sales price after discount) = 67729.2 (12% Discount)
Money Factor =0.00008 (APR 0.00008*2400 = 0.192%)
Residual [MSRP * Residual Value] = 49257.6 (64%)
Lease Term = 36
Miles = 12000/yr
Down Payment = 0

State Tax 7.00%

"Monthly Depreciation
[Capital Cost - DownPayment - Residual / Lease Term]" = 513.10

"Monthly Lease Fee
{Money Factor *[(Capital Cost - DownPayment) + Residual]}" = 9.36

"Monthly Tax
[State Tax *(Monthly Depreciation + Monthly Lease Fee)" = 36.57

Monthly Lease Payment = 559.03

[ldk2]

For many negotiations might be very uncomfortable; however, if you do your research with all the prices in mind its always a smooth process. I always take the help of mighty internet and see what is the happy medium that we can settle for and see which dealer has the right car in their inventory and negotiate accordingly.

Its always important to keep your emotions in check. Car buying process may be simple but patience and persistence pays-off in a big way. I cross shop across states and dealers to find the right deal. Some may dislike, but for me I enjoy doing it.

When leasing always do opt for Tire and Wheel care insurance. At the end of the lease even a small scratch/ ding in the wheel set you back a significant amount.

Gap insurance is always included in leases and do verify the same before driving off.

when a vehicle is met with accident and is repairable make sure to use only manufacturer authorized body shops and also make sure the insurer isn't directing the body shop to use any parts either than OEM. (Don't worry when met with a accident, inform the leaser and insurer is always bound to pay the diminished value to you or leaser - depends) and there wouldn't be any repercussions at the end of the lease. Of-course insurance does increase our rates but none from leaser.

Some manufacturers throw complimentary maintenance packages and some are included by default during the lease term. Make sure to check on that too.

At the end of lease, make sure to revert any modifications back to stock.

Its always recommended to visit the dealership at least 3months before lease end to determine if there are any dings/scratches that are out of the prescribed wear meter and needs correction. These small things cost a bomb when returned back unaddressed.

Loaner vehicles are always eligible for leasing and do carry higher discount tags. Some high end loaner vehicles are used only by managers and dealership top people and never forgot to ask if the dealership has any for sale.

If you don't find any vehicles that are matching your needs you can always order. Same or almost same discounts can be applied for custom orders too.

I might have missed or added information which may be in-correct. In such case, Please do correct me so I can be on the same page too

Happy Leasing!!!

[Aditya]

Thread moved out from the Assembly Line. Thanks for sharing!

[loudpops]

Fantastic resource! This is very helpful. Thanks for writing this up!

I have often seen that securing a monthly payment of 1% of the capital cost is a very good deal. Do you agree to that and is that something to strive for?

[Laxman9192]

Seems really convenient to own a car this way. Why don't manufacturers go all in and apply this model to the Indian market? Is it only because of the lower per capita income compared to the developed nations?

[ldk2]

Originally Posted by loudpops

Fantastic resource! This is very helpful. Thanks for writing this up!

I have often seen that securing a monthly payment of 1% of the capital cost is a very good deal. Do you agree to that and is that something to strive for?

From what I have heard getting an Monthly payment of 1% is considered to be a very happy medium to close for. However, this was pre-corona days where Lending rates were normal. need to do a bit of due-diligence to see how things are out there, now.

[ldk2]

Originally Posted by Laxman9192

Seems really convenient to own a car this way. Why don't manufacturers go all in and apply this model to the Indian market? Is it only because of the lower per capita income compared to the developed nations?

I am also on the same thought, about this structure being offered in India. Probably, some one more knowledge full can shed some light on this topic.

[ldk2]

Just helped out a friend getting into a Evoque SE and wanted to share the same info here too.

Evoque is having a great Residual and Money Factor numbers this month and I really feel its money well spent.

21 SE model :

36/12 - Residual is at 61% and Money Factor is at 0.00039 /(0.936APR)

21 R-Dynamic HSE model:

36/12 - Residual is at 60% and Money Factor is at 0.00037 /(0.888APR)

As the inventory is low negotiation is really hard and we ball parked at Invoice and landrover rebates which saved another 7% (Got SE model)

Landrover leases go through Chase and they considered 687 as Tier 1 credit.

[infotech58]

Good information.

Maybe add information about pros and cons of buying those extra insurances/packages that dealerships typically try to sell. I will add what I know.

Lease end wear and tear protection: You pay a fixed amount upfront (or rolled into payments) and it covers for lease end excessive wear and tear (up to a certain amount) upon lease return.
Things to look out for:
Are tires covered? If yes, it may be a good deal as you can return the car without having to replace the tires.
What is the limit of damage covered per panel (not just overall total)?
What is the lease damage assessment policy (what qualifies as excessive wear and tear? What size (and count) of a scratch (per panel) is normal wear and tear?).
Some dealers sell aftermarket lease end protection which means you bring the car to them before lease end and they repair anything that they think may cost you during lease return. That said, there is typically a maximum amount per claim (typically $1,000 per claim - which isn't much these days a couple of scratches on one panel cost that much to buff out and/or repair).


Appearance/Dent protection:
Scratches, paint issues, and cosmetic damages (interior and exterior) are covered.


Tire and Rim protection:
Covers wheels and tires for damages (scrapes, scratches, cosmetic damages, etc.) due to road hazard. Typically useful if your car has low profile tires and expensive wheels. That said, I have had a less than ideal experience with Mercedes while trying to get a slightly ben wheel replaced under this coverage and they denied my claim saying the wheel is not bent enough and is still able to hold air.


Prepaid maintenance (Mercedes is notorious for pushing it):
Typically not a bad deal if you always go to the dealership for maintenance as it protects against any future increase in service cost for the applicable duration.