Originally Posted by escapethematrix
This is an interesting thread, leasing might be a good option for me but I'm not sure I understand how the math works.......residual of 55% means based on total price thats what you would have to pay to buy the vehicle after the lease is up? I am in NC as well.
A lease is actually remarkably easy to understand if rthey dealer gives you the numbers you need to figure out if you're getting a good deal or getting screwed. Knowing the money factor and residual are key. Here's a quick explainer:
Selling price/cap cost
Lease term. We'll use 36 months here.
To roughly get how much you should be paying, you need all those numbers.
So - calculate the residual value by multiplying the sticker price by the residual. In this case, for simplicity, let's use 55% and a sticker price of 50k.
So the residual value is 27.5k
Now we need to figure out the selling price and cap cost. Negotiate the lease like you would a cash deal. This is VERY important. So, say you're a good negotiator and you get the selling price to be $42k. To get cap cost, add any fees like documentation, tags, payoff for previous loan. Let's say you've got $1k total in those fees. So cap cost is $43k
Money factor is essentially your interest rate. In fact, you can use the money factor to decide if leasing for a few years even if you plan on buying the car
is a good idea (that's my case). Right now, in NC, Chrysler Capital is offering .00007 as the money factor. To figure out what that interest rate is, multiply the MF by 2400. That MF is 0.17% interest. That's right. Nearly zero.
With a lease, you pay the difference between the cap cost and the residual value over the x months of your lease term. In our example, your pay a total of 15.5k at .17% interest divided by 36.
That means your lease payment should be roughly $450/month.
Now, why would the residual and MF be important for you to know? Because if you go with a different bank you might have a higher residual value and higher MF.
You would get nearly the same monthly payment if your residual were at 64% and the MF at .002. That might not matter to you. But if you need to buy out the car or would like to, you're going to get hosed. Or say you want to trade it in - your equity will be far lower.
Dealers can negotiate on selling price, obviously. But they also will often pad the MF. That's why they are reluctant to show you the numbers and it's hard to get a straight answer from them about these things.
Dealers know that if you lease, you might want to lease again. You might want to get out of your lease early in which case the residual value is super important.
Don't get screwed.