How to steal a lease?!?

[DietStartsMonday]

Alright so I've read a lot of posts on here which really helped me see the value in leasing a car being how well Wranglers hold theirvalue.

I've been searching for about a month now and trying to come up with the best deal...

I've got a deal in place and was hoping to get some opinions on it.

JEEP JLUR
MSRP: $47,910
Invoice: $43,799 (9% below msrp)
MF: .00208 (4.99% APR)
Term: 48/10
RV: 64% ($31,942)
Total Due at signing: $4,150
Mo. Payment: $400


I've attached the breakdown sent by thedealership... i've been using leasehackr to help base the numbers and with everything I think I’ve learned so far something still doesn't seem right...

From what I added up, all of the "dealer fees" add up to $1,784.5 which the sales manager added up to $2049.00; so right there that doesn't make sense; maybe just bad

Based off what they broke down, they have a final sales price of $49,293. Here's where I think they are trying to pull the wool over my eyes... How does the final sales price become $1383 more than MSRP

Out of the $4150, I took the $1784.5 out for dealer fees which leaves $2365.5 that should be applied to net cap cost.. if i'm assuming correct, that 2365.5 should be directly deducted from the invoice of $43,799; no? All that I should be responsible for is the tax on net cap cost..

So if you take 41433.5 (new invoice # after Down Payment) - 31942 (RV) = $9,491.5 (Depreciation)

IDK, am i missing something? This is the first lease i've ever truly looked into the numbers to understand the math side of things and all it really makes me realize how corrupt dealerships are... i mean i get they need to make money but their approach in doing so is in hopes that the consumer is blind enough to just look at the mo. payment....

I'd love to get some feedback on this deal and possibly a strategy to best close this deal.

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[Wanderingwheelz]

The “Selling Price” jumps a staggering 11.2% before reaching the “Final Selling Price”.

If I were you I wouldn’t have any more contact with anyone from that dealership.

 

[BlairF]

If you are leasing, you shouldn't put any money down, that just free money for them.

 

[UCF Knights]

Watching this post for some education...

 

[GRAK]

Boring. Is he camping yet?

 

[Periokid]

There are a lot of fees on that list!

 

[LeaN69]

Key replacement - BS charge
Theft Guard - BS change
Total tax - seems like purchase tax-based on total value. Lease tax is only on depreciation so should be less then half that.
Dealer service fee?? - Acquisition?
As you could see the Money Factor is terrible! See if you can put down MSDs to drop it.
Don't give them anything upfront except motor vehicle and first month.

This is a bad lease deal in general terms, but wrangler wise its OK, since it does meet 1% rule. (400x47)+4,150=$22,950 total lease - 22,950/48=478.125/mo(plus money factor on additional $ rolled into payments)

 

[automaton]

The Money Factor conversion to Interest Rate that dealers give you (or any of us) is misleading. If you break it down, it usually comes out to 3 or 4 times the Interest Rate you get quoted. In my instance it was nearly 4 times as much. I just financed it after I realized that.

If you need the absolute lowest payment and know that you will trade it in, it might make some sense, but be aware that you are actually paying more over the life of the financing if you lease. Also, if you decide to keep it at the end of the lease, you lose out on the better, new car, financing rate and pay the higher, used car, rate at that point.

 

[beachbum]

If you are leasing, you shouldn't put any money down, that just free money for them.

I'm not sure you understand leasing. Money down on a lease is same as money down on financing. The dealership doesn't just keep it, it goes towards your total payments.

In general there seems to be a lot of confusion around leasing. It is functionally the exact same thing as financing. The only difference is the manufacturer offers you an additional bonus in that they commit to buy your car back from you at a specific price at lease end should you want to sell it.

The only actual difference in cost of lease vs. financing is interest rates. Sometimes interest rates on financing is lower than leasing.

The Money Factor conversion to Interest Rate that dealers give you (or any of us) is misleading. If you break it down, it usually comes out to 3 or 4 times the Interest Rate you get quoted. In my instance it was nearly 4 times as much. I just financed it after I realized that.

I believe you are making a conversion error, there is no way lease interest rate would ever be 3-4x financing rates. Multiply the money factor by 2400 to convert to interest rate.

 

[beachbum]

The main issues I see in the deal as shown above are as follows:

1) Lots of extra fees, key fee, theft guard, dealer fee AND a doc fee
2) It appears the sales tax is incorrect and should just be sales tax on the lease amount (down payment plus all monthly payments). Usually on a lease the sales tax is charged monthly on the payment amount and not calculated upfront.
3) Sales Price - 9% below MSRP is OK but many people here are getting 5% below invoice which is a bit more than 9% of MSRP.
4) Money Factor (interest rate) seems high. The dealer is given a buy rate (the actual interest rate the financing institution is charging) and then allowed to add up to a certain amount as extra profit. You don't need to pay the extra finance rate. Find out what the buy rate is. Usually Edmunds makes that info available or ask on this site.
5) The type of model. The residual has a huge impact on the lease price. The residual on Sport S is about 5% higher than on Sahara / Rubicon. You may want to consider getting a Sport S and adding as many options as possible to try to mirror your current build. A Sport S at the exact same selling price as a Sahara / Rubicon will have a payment $50 - $75 less.

 

[BlairF]

I'm not sure you understand leasing. Money down on a lease is same as money down on financing. The dealership doesn't just keep it, it goes towards your total payments.

In general there seems to be a lot of confusion around leasing. It is functionally the exact same thing as financing. The only difference is the manufacturer offers you an additional bonus in that they commit to buy your car back from you at a specific price at lease end should you want to sell it.

The only actual difference in cost of lease vs. financing is interest rates. Sometimes interest rates on financing is lower than leasing.



I believe you are making a conversion error, there is no way lease interest rate would ever be 3-4x financing rates. Multiply the money factor by 2400 to convert to interest rate.

You are going to pay the same over time. don't go out of pocket at the onset.

 

[Krondor]

Looks like a crap deal to me:

$400 x 48 months = $19,200.00
+ $4,150 due at signing?
+ $31,942 due at the end of the lease to buy?
-----------------------------------------------
$55,292.00 Total cost for a vehicle that MSRP's for $47,799.00.

That's $7,382.00 more to have a $400 payment for 4 years? Only to turn around and have to refinance the rest or give up the Jeep completely?

Nope. Leave and never go back to that dealer. IMHO

 

[RubenZ]

Never ever ever Lease. Its a waste of money and if you actually plan to buy it at the end you may pay an extra 10+K its not worth it. And despite what someone said above about downpayment is not entirely true. A down payment on a LEASE at least the way it was presented to us when buying our 4Runner is NOT the same as Financed Down Payment. All the downpayment would have done on our LEASE from Toyota was help with Monthly Payments. It never really even lowered the cost of the overall price. And we put 7k down.

 

[automaton]

I believe you are making a conversion error, there is no way lease interest rate would ever be 3-4x financing rates. Multiply the money factor by 2400 to convert to interest rate.

Ask yourself how he gets a $400/month payment on the total amount he's supposed to pay toward the lost value of the vehicle, fees, dealer add-ons with only 4.99% interest.

 

[beachbum]

Looks like there's some severe misunderstandings on leasing:

When you finance a car you are taking a specific amount of money and paying for it over a specific period of time. So let's take a $50k car for example.

Let's assume you finance with nothing down. You can choose the length of the term. Let's pick 60 months. During the first month you owe $50k so you will pay interest on $50k plus some amount towards the equity paydown. Every month you will owe less on the car so the interest portion of your payment is less because the principal balance is lower thus leaving more of your payment towards the principal paydown. Because we chose 5 years, on average you will have paid down approximately 20% of the initial price every year (slightly less in earlier years and slightly more in the final years but negligible difference on 5 year loan). But because you are paying off so much of your car so fast the amount you still owe drops rapidly and thus the interest amount does as well.

The downside is you are artificially choosing 5 years. Realistically the car still has value after 5 years so you've actually paid down more of the car's value than you used, effectively building up equity. But you are not building equity in the sense that the asset has gone up in value, simply that you overpaid for the amount you used. Jeep figures the Wrangler Rubicon will be worth approximately 68% of its initial value after 3 years (residual). So they amortize the payment to match that.

Using the 5 year financing method above, after 3 years you only owe $20k on your Jeep, but Jeep thinks that car might be worth $34k at that time. So instead of having you pay down so much and then giving you a refund of $14k at lease end ($34k - $20k prinicipal left using a 5 year finance structure) they choose a point in the future and match your amortization schedule so your principal equals what they think is the value of the car at that future point. To have a $50k car have $34k remaining principal in 3 years, you would need to spread the amortization over 9 years.

So using Jeep's numbers, their lease is exactly like financing the car over a 9 year term but with the option to give the car back after 3 years because the principal remaining equals what Jeep thinks it will be worth.

Some of you might think its crazy to finance a car over 9 years but all you are doing when you finance it for a shorter period of time is using your car as a savings account. You are paying down the amount you owe faster than its depreciating and then if you sell, you'll recoup that extra money. But considering the low interest rates today, you are putting money into a 2% interest savings account. You could just as easily pay the actual amount that the car is depreciating and the "extra" money you would otherwise have paid to pay down your loan faster than depreciation, you could freely invest in anything you want. The probability that the best and highest risk adjusted return in the universe of investable assets is coincidentally the car you want to buy is unlikely.

A car is a depreciating asset and therefore has 2 costs, the amount of the value that depreciates during the time you own it and the interest on the asset for the time you own it. Paying more than that is fine, but there's no magic to it. It's exactly the same as a lease. Imagine walking into a hotel and asking how much it will cost to stay there for the next 2 years. The manager adds up the nightly rates and gives you the total. You could pay the total that matches the time you will use the hotel or you could tell the manager that you would like to pay a lot more than the total but have the difference refunded to you at the time you check out. That's the difference between financing a car using an artificially short amortization schedule (4-5 years) and leasing with a more realistic amortization (based on objective measures of depreciation). If you do choose to pay for exactly the hotel cost, it makes no difference to the manager if you pay it every day or the entire amount upfront or any combination thereof. Same with a lease. You are paying for the depreciation for the duration of the lease plus interest on the remaining principal. If you choose to pay that upfront or monthly just affects your payments and barely affects the total amount you pay (I wrote barely because obviously with payments there is a higher principal outstanding during the lease term so total interest payment is a bit higher to cover interest on the higher balance).

Sometimes people act like these are 2 radically different mechanisms. Its the exact same thing just with different loan terms. The only real differences are:
1) Any interest rate difference (sometimes the lease interest rate or finance interest rate can be higher/lower depending on manufacturer or bank programs)
2) The extra protection of having the right to walk away at lease end. If car is worth more you can still sell it yourself but if it has depreciated equal to or greater than the lender's projection you get to "sell" at that higher price by turning the car in.
3) Any tax implications (usually if you have a business).
All the other stuff of extra fees etc. is nonsense. Anyone can request any fees they want and it's up to you to say no. The should be no difference in negotiated price and the only difference in fees is a possible one time acquisition and/or disposition fee for leasing. Even the term buy is misleading, you're always renting even when you "buy", you are renting for whatever term you choose to hold the asset then you return it to whomever is the next owner and your rent payments equal the value the asset lost while you held it plus interest for the asset during the time you held it.

As for keeping the car at the end of the lease. That goes back to point 1 above regarding interest rate differences. Financing upfront may be more advantageous if you can lock in a lower interest rate for the entire term of the loan versus splitting the loan into 2 portions with 2 different rates. The lease rate for the initial term and then the used car interest rate for the term following the buyout.

Ask yourself how he gets a $400/month payment on the total amount he's supposed to pay toward the lost value of the vehicle, fees, dealer add-ons with only 4.99% interest.

He's paying interest on the entire amount he is borrowing. When you lease you are renting the entire vehicle for 3 years (not just the value the car will lose while you own it) and therefore pay interest on the entire outstanding principal every month you still have the car. Just like if you finance a car, the first month you will pay interest on the entire value of the car and every month it will go down.

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