yustas

I did not even know that the option existed. For the 2013 A6 3.0, I was quoted 1.41% interest and 55.00 residual on the 36 months/12,000 miles lease. If I pay the whole thing upfront, I save over $3K and they drop interest to 0.41, but my question is, since I am paying the whole thing off in one payment, why do they charge me an interest on this lease at all? I have never leased before, so I do not know if this is normal or not. Thanks.

ktm001

When leasing there are two components where you pay interest. The first part the revolving portion which you pay off monthly. This is the part you will pay all at once. The second part is the fixed part or usually referred to as the residual since you will not be paying this interest will be charged on this amount. To understand how much interest you will pay you can multiply the lease rate 0.41 by the residual amount. That is all your lease charges.

In Canada Audi offers ballon financing which has advantage over lease if you where to put a large downpayment.

Your deal is also good

ming2.7

One caveat worth considering is in the event the car is a total loss before the end of the lease, will you be able to recoup any of your pre-payment. While insurance, gap & auto, will cover the value of the vehicle, what will happen to your upfront payment/

Jatmobil

Absolutely the reason why this is not recommended! You are bound to lose the entire upfront payment incase of a total loss! As a matter of fact, it is recommended in leases to not capitalize any of the cost!

The-Noid

We have prepaid a few leases for work when acquiring a vehicle. Each company handles it a bit differently. I am not 100% confident how AudiFS handles a prepay, so please run through things with your finance department.

These are the terms for how Ford Motor Credit handles a prepay on a recently leased vehicle. Lexus was very similar.

First, the interest rate is found on the lease. From Ford (Lincoln) it was 4.01% (money factor x 2400).
Second, a rate is negotiated on a prepaid lease. This was .26% on our last lease.
Third, the total amount of payments is decided based on the residual assuming the 4.01%.
Fourth, an amount equal to (capitalized cost)/{[1-(.0026/12)]^36} is deposited into a custodial account with Ford Motor Credit. The account that cash is deposited into accrues interest at a rate of {{[(1+.0401/12)^36]/[(1+.0026/12)^36}^(1/36) - 1} * 12 = 3.74%.

What this does is create no "gaps" as you continue to have an actual lease of the car; however you have saved the interest rate. In a sense you pay .26% for the gap insurance.

A prepaid lease is very different than a cap cost reduction. From a business standpoint our checking account pays 0% and this pays ~3.74%.

Prepaids work great for us.

Again, I do not know how AFS handles this, but my guess is this is done from an insurance standpoint so close to industry standard.

The-Noid

I should not the payments are then made automatically out of the account and no bills, etc are sent.

yustas

My understanding is that in an event of a total loss, the insurance pays out the value of the car, whatever it is at that time. I am assuming that from that insurance payout, a portion of it will go to me (to cover the portion of the unused lease) and the rest to the dealer, but I'll ask my dealer. Good point, thanks.

yustas

So if I understood your explanation correctly, the 0.41% interest I am paying is on the residual value of the car, right?

The-Noid

In a lease it pays out the value of the car. At the beginning of the lease the car value is less than the total amount due on the lease. This creates an insurance gap. The insurance gap is paid either via the leasing company of via your insurance, so the total due on the lease is paid in the event of a total loss early on. If you reduce the capital cost of the lease to lower your monthly payment, the amount of capitalized cost reduction may not be able to be recouped.

Again, don't confuse capitalized cost reductions with a full prepayment of the lease. Most are handled very differently.

The-Noid

The .41% is paid on the capitalized cost which is equal to the purchase price times the residual and the effective taxation of the payments.