damn - i hope this deal is still going in 2 months time...

 

how much would it cost to break the lease say after 24 months if it was a 3yr leasE??

 

if you buy a car and build equity in it, and you get into an accident and total it, you get market value for the car, NOT THE RESIDUAL.

the residual is what you owe on the loan...what you're saying is if you owe $8K on a car worth $12K, you only get $8K and that is certainly NOT the way it works.

Of course, "market value" can vary widely.

Now, if you total early in the loan and owe more than the value, you may be SOL. It depends, though. I get both my loan and insurance through USAA, and in this instance USAA would just pay my loan. With other companies you should consider gap insurance.

In June I got rear ended. It had to go through subrogation because Hartford was hard to deal with. I owed $18K on the car and got the $22K USAA deemed to be the market value on my 2001. In other words, I kept my equity.

 

It depends on your leasing company.

It can vary from as simple as paying the any remaining interest on the lease (yes, leases have interest built into the payment). This would be about a third of your payment for 12 months. Or it can be as severe as having to pay the remaining 12 lease payments (in which case it would be just stupid to terminate). Since you're giving the car back, you'd have to pay the disposition fee and any applicable lease early termination fees, too.
you have to call to ask.

Almost any company will let you buy out the lease at the current residual. You could do that and just sell the car the next day. That would get you out without any fees. You may not be able to sell it for the current residual, though.

 

By residual, I meant what the car is worth at the given time, not what you owe. Just using the same terminology used to refer to the value of the vehicle at lease end. I am saying if your car gets totalled and it's worth $12K but you owe $8K, you'll get $4K in the deal. In other words, I agree with you on that part, we probably just have different terminology.

In almost any loan on any car you would have to put down a very significant downpayment to stay ahead of the curve in the early part of the loan. A new car pretty much drops 10-15% or more in value as soon as you drive it off the lot, before even 1 monthly payment is made.

In your $18K versus $22K example, you also need to factor in any money you have put into the car -- downpayment, monthly payments, etc.... Add that all to the $18K and subtract from $22K to determine the effective "equity". I do hate using that term on cars, as equity implies a share of a property that has future value. That gets dubious in the context of cars.

Craig

 

Here's a data point. For the baseline $299 Honda lease deal, the monthly payment is broken down as follows:

263.12 depreciation fee (effective "principle" on the effective "loan" you are paying off)
35.88 finance fee (effective "interest" on the deal)

So in this case, the effective interest is about 12% of the monthly payment.

Craig

 

For those who asked before, the lease company is AFHC. The deal I got is not too spectacular, it is essentially the promotional deal adjusted for a lower capitalized cost due to the fact that I negotiated the price the dealer sold the car to the lease company. I essentially saved about 1500 (diff of ~31800 vs invoice of ~30300) or about $45 a month because of this. Use Skier's spreadsheet and read the leaseguide, they are very helpful in negotiating - Thanks Skier!

 

Not sure if this means anything, but my Sister-in-law's Dad owns an 18,000 sqft home for about $3.5 Million and leases a Roles Royce, Ferrari Testerossa, some big ass mercedes that looks like the President should be driving, and a 2004 Porsche 911 Carerra Twin Turbo. He also owns another $4 Million house in Vail, Colorado. His reason for leasing is exactly that. He says that he enjoys having the Exotic cars, but the extra money he saves by leasing allows him to invest that money and earn 13-20%. He is a Venture Capitalist and makes his living by investing money. So my guess is that the rich get richer because they tend to focus on letting the dollar work for them as opposed to them working for the dollar.