Serious question here.... anyone lease??
07-05-2007, 07:20 AM
#11
New Member
Join Date: Jun 2007
Posts: 85
Likes: 0
Received 0 Likes
on
0 Posts
Well, they front-end load the "interest", so they are effectively "made-whole"
on their interest. Additionally, unless you are trading the vehicle in (which you will get bent over one) you will have to pay sales tax(again) on the lease buy-out.
No, it's not difficult, but it would cost more.
No, it's not difficult, but it would cost more.
07-05-2007, 07:29 AM
#12
New Member
Join Date: Jun 2007
Posts: 85
Likes: 0
Received 0 Likes
on
0 Posts
I never understand this comment...whether or you buy or lease, the RS4 still depreciates-it's about
opportunity cost of capital. At the end of the day you buy the car for X and when you got to sell it (irrespective of financing medium) it is worth Y.
Not sure if I'm missing something.
Not sure if I'm missing something.
07-05-2007, 07:55 AM
#13
New Member
Join Date: Jun 2007
Posts: 60
Likes: 0
Received 0 Likes
on
0 Posts
They don't front-load the interest ...
It seems that way because a larger percentage of your payment goes to interest in the beginning. However, as you keep paying down the principal, the ratio of principal/interest of your monthly payment will go up.
The same concept applies to mortgages -- a lot of people assume that the lenders frontload the interest, but it's actually a "natural" phenomenon when doing borrowed funding.
The same concept applies to mortgages -- a lot of people assume that the lenders frontload the interest, but it's actually a "natural" phenomenon when doing borrowed funding.
07-05-2007, 08:17 AM
#14
AudiWorld Super User
Join Date: Mar 2000
Posts: 24,309
Likes: 0
Received 0 Likes
on
0 Posts
with a lease, that's all you pay for....depreciation.
if you buy the car, you're financing the entire thing.
example: car costs $70k (total), you finance it with $0 down and a 7% loan for 48 months, payments are $1810/mo. Residual after 48 mo is 48%, or $33,600. If you sell the car, you total cost over the 48 months would be $53,280.
now let's say you lease that same car with $0 down, a MF of .00342, 48 month term, and 48% residual. Payments are $1202/mo, so you put that extra $608/mo (that you otherwise would be spending on the car loan above) into an index fund (or other investment) that makes 10% per year (using a conservative number). At the end of the lease, you've spent $57,696 on payments, BUT through the beauty of compounding interest, you've MADE about $36,757. So at the end of 48 months, your net cost for the car is $20,939...less than HALF what you would pay to purchase it via a car loan.
example: car costs $70k (total), you finance it with $0 down and a 7% loan for 48 months, payments are $1810/mo. Residual after 48 mo is 48%, or $33,600. If you sell the car, you total cost over the 48 months would be $53,280.
now let's say you lease that same car with $0 down, a MF of .00342, 48 month term, and 48% residual. Payments are $1202/mo, so you put that extra $608/mo (that you otherwise would be spending on the car loan above) into an index fund (or other investment) that makes 10% per year (using a conservative number). At the end of the lease, you've spent $57,696 on payments, BUT through the beauty of compounding interest, you've MADE about $36,757. So at the end of 48 months, your net cost for the car is $20,939...less than HALF what you would pay to purchase it via a car loan.
07-05-2007, 08:28 AM
#15
New Member
Join Date: Jun 2007
Posts: 85
Likes: 0
Received 0 Likes
on
0 Posts
That was my point: it's a matter of opportunity cost of capital...
That is why I said if you can find a fairly liquid, short-term investment (with similar risk/beta) that exceeds the converted lease money factor (typically >9.5%), then don't put money down; othwerwise, put money down and even think about taking advantage of their multiple security deposits if you can't "beat" the implied "interest" earned.
My point was that always saying don't put money down with a lease is a heuristic approach and doesn't always hold up.
My point was that always saying don't put money down with a lease is a heuristic approach and doesn't always hold up.
07-05-2007, 08:31 AM
#16
New Member
Join Date: Jun 2007
Posts: 85
Likes: 0
Received 0 Likes
on
0 Posts
Was trying to be somewhat simplistic. I understand the concept of compounding/amortization...
I think (correct me if I'm wrong) implicit in the lease formula and payoff methodology for a closed-end lease, you still pay all of the rental charge/interst you would have paid had you kept the vehicle through the full lease term (and you have to pay sales tax on the vehicle, again, unless you trade it in) even if you buy it out of the lease early.
07-05-2007, 08:39 AM
#17
AudiWorld Super User
Join Date: Mar 2000
Posts: 24,309
Likes: 0
Received 0 Likes
on
0 Posts
yes, you do pay the 'rental charge' in an early payoff, but....
...I think that's negotiable if you trade in the car for another of the same brand (and use the same financing co.).
07-05-2007, 10:32 AM
#20
New Member
Join Date: Jun 2007
Posts: 60
Likes: 0
Received 0 Likes
on
0 Posts
Re: with a lease, that's all you pay for....depreciation.
I don't think you actually MAKE $36.7k -- that's the future value of this cashflow assuming a 10% annual return (compounded monthly)(using Excel, I actually got $35,703).
After the 48 months, you would have contributed $608 * 48 yourself, which is $29,184. Therefore, you actually MAKE the difference, which is ~$6.5k.
$57,696 - $6.5k = $51,196 ... that's the final cost of the lease.
correct me if i'm wrong here somewhere though ...
After the 48 months, you would have contributed $608 * 48 yourself, which is $29,184. Therefore, you actually MAKE the difference, which is ~$6.5k.
$57,696 - $6.5k = $51,196 ... that's the final cost of the lease.
correct me if i'm wrong here somewhere though ...