As far as I understand, here it goes...

Lets say the total is T amount of $ including tax, etc
Downpayment is D and Monthly is M for X number of months

Residual R is counted based on the following (if I am correct?)
R = T - (D + MX)

Then what happened to the R at the end of the lease ? If the R > market value, just simply return it is the best option? If R < market value, try to sell it to earn $ and pay the R? Or I get it the other way around?

Is that how it works? or more complicated than that?

 

Residual is the same no matter how much money you put down. Residual is a percentage of the MSRP, not the selling price, and is predetermined by the leasing companies based on their evaluations of what the vehicle will be worth after x months. For instance, if you buy a $33000 S2000 for $30000, and the residual after 36 months is 60%, the residual will be .6x33,000, no matter what the tax or down payment.
If you are lucky enough to get a vehicle that is worth significantly more at the end of the lease than the residual, then sure, you can buy out the lease and sell the vehicle. However, that almost never happens, which is why Manheim is in business.
I hope I explained that simply, leasing is fairly complicated, it's not nearly as cut and dry as financing.

 

Therefore if I can buy the vehicle for $30k instead of $33k, therefore people who finance/buy cash will lose less than people who lease if people who finance/cash buyer sell the car at the year where the lease ends?

 

Not necessarily. If you buy or lease the car at $30k, in 3 years, the car will be worth the same amount. If you got a killer lease, and the residual is say $16k, and the car is worth $20k, you lost money on the lease, because you were financing the depreciation ($14k).
However, if the bank was way off, and the car is actually worth $12k, you "lost" less money, because you still only financed $14k, but the car depreciated $18k. That almost never happens, if it did banks would be out of business.

 

Let me get this straight, if i lease at 30k and residual is 16k, means that i already paid 14k at the end of the lease, if the car is worth 20k, does it mean if i buy the lease and sell the car, i m ahead 4k?

total cash flow
- (14k (lease) + 16k (buy out lease)) = -30k (cash out)
sell at 20k, means -30k + 20k = -10k (net cash out)

that means at the end of the lease, if i do the above, i only pay a net 10k lease at the end of the lease (unless I am missing something here)

for this scenario

total cash out
- (14k (lease) + 16k (buy out lease)) = - 30k (total cash out)
sell at 12k means -30k + 12k = -18k (net cash out)

at this point, if I lease, I rather return the car and not buying the lease since i will lose more... (unless of course, I am missing a point here why your explanation suggest the other way around)

 

I used to sell cars so if you got a question you can PM me


ALWAYS and I mean ALWAYS negotiate the "money factor" The money factor is a small percentage which is kinda like an APR for a purchase. it looks something like .0281 or .1871....... the smaller the better. the finance manager will play with this number to make a profit or lower your monthly payment.

NEVER do less than 15K miles a year on a lease unless it's not your daily driver. it costs FAR less to pay extra for miles up front than at the end. kinda like a cell phone contrct where 500 minutes more costs 20 bucks up front but going 500 minutes over means you gotta sell a kidney.

 

Then again - don't lease! It's the same as renting an apartment. No equity!

I'm sure everyone has heard of Suze Orman. Check out this informative article:
Article on Leasing

However, thanks for explaining the leasing details so thoroughly Dre/Switchcars/Gameson.

- Project

 

Saying it's bad to lease or to rent is

ofcourse leasing is not for everyone but it is good for some people on certain vehicles. The same goes for renting. It's all depend on the lifestyle and situation of that particular person.

I wouln't call that article informative. Informative is when they present both the good and the bad of leasing. not.... leasing is bad period..

 

When I opened this thread, I thought "Oh no, not again" but the thread starter had a general question.

We just laid a thread to rest where we got all into the philosophy of leasing. Just know that some folks are very against it and others aren't. Leasing arguments will go nowhere and will produce nothing.



One thing I am going to argue is this statement I quoted - Equity?......in a car?.....when talking about financing options?.......give yourself one of these:

You want to talk about real equity through financing, start a thread on houses.

 

If I understand your interpretation correctly, you are correct. Regardless of what the car is actually worth at the end of the lease, you still have $14k out of pocket at lease-end.

If, as in the first scenario, the car is actually worth $20k, you are best to buy the car out and sell it for a profit of $4k. (so yes, a net out of pocket lease of $10k, if you want to look at it that way)

In the second scenario, you are better to turn it in, and let the bank send the car to the auction and absorb the difference between buyout and market value. (that way you will have a net lease of $14k...whereas you would have an $18k lease if you bought it out and sold it at a loss).