Quote:
Originally Posted by Ryan9095
Also, gap insurance would cover the car if it got totaled. So I'm not worried about any loss god this would occur. I would appreciate if you wouldn't mind explaining the numbers so I can attempt to negotiate a better deal.
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Sorry for the slow reply.
First, gap insurance covers the 'gap' between what you still owe the leasing company and what the car is worth when it is totaled. It won't help you recover monies that you've already spent. I understand the psychology of a lower payment, but you'd be better off stuffing $3600 under your mattress and pulling out a crisp C-note once per month, rather than give it to BMWFS up front.
As for how a lease is computed, there are a couple of important bits of information you'll want to look up or otherwise glean. There are many spreadsheets floating around that can do the computation for you. It's not really hard, but it's a little cumbersome.
1. MSRP - This is the sticker price. You need this to compute the residual value.
2. The residual value percentage. This is how much the car will be worth at the end of the lease. For example, if your car stickers at $40k, and has a 60% residual, it will be worth $24k at the end of the lease.
3. Capitalized Cost. This is the price you are paying for the car. If you got your $40k car for $1500 of sticker price, the capitalized cost will be $38,500.
Once you add in any fees that you need to pay, and subtract the down payment you make from this number, it becomes the adjusted capitalized cost. (Don't forget the fees and down payment) This adjusted number is important below.
4. Money factor. This is the interest rate. You'll typically see it as a cryptic number like 0.00165. If you multiply this number by 2400, you can convert it to an interest rate.
Now on to the fun stuff. When you lease, you are sometimes told you're only paying for depreciation. It's not the only thing, but it is part of it.
Depreciation is calculated like this:
((Adjusted capitalized cost) - (Residual value))/(# of payments)
So, if you by the car for $38,500, and it's worth $24,000 at the end of 3 years, the depreciation is: ($38500 - $24000)/36 = $402.78
Now, the remaining portion of what you pay is the finance charge. They charge you interest on the value of the car. The problem is, the value of the car changes each month. i.e. the car is worth the full price in the beginning, and the residual value at the end of the lease. So, they charge you interest based on the average value of the car:
Again, if it's worth $38,500 at the start, and $24,000 at the end, the average value is: (38,500 + 24000) / 2.
If you start with an annual interest rate, let's say 4% (which is 4/100), and turn it into a monthly rate by dividing by 12: (4/100)/12, or (4/1200)
Multiply the average value by the monthly interest, and you get:
(38,500 + 24000) (4/1200)/2.
notice that (4/1200)/2 is the same as (4/2400). Remember I mentioned that the "money factor" is the interest rate/2400 above? So, the interest part is really just the capitalized cost added to the residual, multiplied by the money factor. In this case, it will be:
(38,500+24000)*.00167 = $104.38
If you're still awake, your total payment is the depreciation + interest, which is: $402.78+$104.38 = $507.16.
So, in summary:
1. Calculate the capitalized cost (C) and the residual value (R).
2. assuming 36 payments, and MF is your money factor, your payment is:
(C-R)/36 + (C+R)*MF
I won't bore you more this evening. Tomorrow or Wednesday I'll go over some negotiating points on you lease, including what fees are negotiable, and some other programs that might save you some money in the long run.