seattle audi

how does it correspond to an interest rate. I thought only regular financing (loans) have interest rates. I recall other posts mentioning a multiplier (money factor times _____ equals interest rate). I'm considering an Amulet 4.2 Sport and any information regarding leasing would be helpful (I do understand the significance of the residual amount in that a higher residual and lower cap. cost equals a lower monthly lease payment).

AMP

In short, MF times 24 gives you the equivalent rate. Here's how it works...

There are three parts to a lease payment (rent, depreciation, and tax). To figure out a payment you add the three up...

ACC = Adjusted Cap Cost = Sale price + Extras - Cap reduction
RES = Residual (in $)
MF = Money Factor (usually in the form of .00xx)


So...

RENT = (ACC + RES) * MF [yep, that's a plus - think of it as an average]
DEPR = (ACC - RES) / TERM(months)
TAX = (RENT + DEPR) * your local use tax rate

PAYMENT = RENT + DEPR + TAX

The biggest factor in your payment is the cap cost. The three ways to reduce it are:

1) negotiate the price of the car
2) negotiate the dealer extras
3) pay it down with a cap cost reduction (bad idea)

The second biggest is the residual, but you usually can't make that number bigger - bigger residual is better.

Third is the money factor. This can be negotiated with varying degrees of success.

Keep in mind that the best lease is one with a high residual and a fair cap cost (without money down). Keep in mind that if you do put money down and the car is totaled you don't get that money back. Furthermore the main benefit of leasing is to conserve cash which you are not doing if you make a downpayment.

seattle audi

Thanks...one question though - Can't "negotiate" (i.e. make bigger) the residual balance?

AMP

The residual represents one part of the "risk" that the leasing company is taking in providing this mode of financing. (The other parts are your likelyhood of making the payments and your likelyhood of destroying the car).

If they allow you to raise the residual then they are increasing their risk as that is the amount of money that they need to recoup from the sale of the car. The residual is usually based on national averages.

One of the popular incentives is an inflated (or subsidised) residual. Given the state of the used car market I would say that those deals are few and far between as leasing companies are scared right now.

Focus on the sale price and the dealer extras. Don't tell them that you plan to lease until you have those numbers hammered out.

seattle audi

As I mentioned earlier, I was under the impression that interest rates applied to regular financing and not leases. Am I wrong?

AMP

Think of it as the fee that you pay for the use of the finance company's money. It's not interest per se, it's really the cost of borrowing and lending money. It fluctuates for the same reason that interest rates do... it's based upon the relative health of the economy and how much it costs a lender to loan.

Remember, lenders are always borrowing from other lenders, who are borrowing from the government, who are borrowing from the people, who are borrowing from lenders...

seattle audi

the next time they go to the dealer for their next purchase. (God, just enough information to make me dangerous )

Autohound

This sort of prompts me to ask opinions here...when the time comes for me to procure my car...any advantage to leasing over buying these days? I know historically it's been cheaper up front to lease, i.e. no "down payment" per se...but does it come out sort of a wash between the two if one puts a chunk down up front on a lease or one does the same and purchases the car instead? I'm speaking mainly in terms of monthly payment cost. Thanks in advance for comments.

james18322

So whats the best lease for 02 A6 4.2 ?
I am thinking of getting one, can someone help me ?

CWK

Here's a little more technical discussion of the "money factor" in the link below. Leases are really a combination of a borrowing at an interest rate related to the money factor, and a "put" of the car to the leasing company at a predetermined price (the residual value) at the end of the lease. If the car depreciates more than expected, then the leasee (i.e. you) can pass that loss to the leasing company by turning in the car. The leasing company prices the risk of excess depreciation into a somewhat higher interest rate than would otherwise apply to a loan, where the buyer (i.e. you) keeps the risk of excess depreciation. Thus it is hard to compare the true cost differential between lease vs. buy until the end of the deal, when actual depreciation is known.<ul><li><a href="http://www.efunda.com/formulae/finance/moneyfactor.cfm">http://www.efunda.com/formulae/finance/moneyfactor.cfm</a</li></ul>