Teach me about leasing

[Tik-Tok]

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Looking(sort of) at leasing an X3M. For a 90k car with 5k down at 3% for 4 years at almost $1200 a month with a residual of about 36k sounds like a terrible deal, does it not?

Any money down sounds like a terrible deal.

[03ozwhip]

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Any money down sounds like a terrible deal.

I wouldnt put any money down, so ya, that's part of it lol

[ExtraSlow]

$1200 a month is almost as much as my mortgage. Holy shit.

[shakalaka]

Okay so putting money down on a lease means you're basically pre-paying your payments which in result makes your monthly payments lower. You don't 'lose' any money if you put a downpayment per se as you end up paying the same amount during the entire leasing term regardless. With the down you've just lowered your monthly payments so if low monthly payments is your goal on a lease then putting money down isn't necessarily stupid if you can't think of anything else to do with that.

What could potentially go wrong with putting a large down on a lease is say a few months into the lease you total the vehicle - the insurance is going to pay out the market value and if the market value is pretty much just what the residual is or is an amount significantly less than what you paid, you potentially lose that large downpayment as you won't get it back. I hope this makes sense.

Now about this specific deal - paying $1200 a month for the X3 (notwithstanding it's a M) to me seems excessive as I know X5's can be had for a grand a month if you pick and choose the right unit. I don't know much about the X3M's though so perhaps it's an okay deal but just in general that amount for a X3 type of vehicle does not appeal to me. Also, if you don't have a vehicle to trade in, I highly suggest going on Leasebusters and seeing if you find something that you like that you can take over the lease of.

I found my brother a deal on a 440 M Performance Edition, special edition colour etc a while back where he took over someone's lease at their monthly payments and they gave him a $13K cheque on the side. So basically one year free and he got a mint car, next to new, with only having to pay for it for a year and drive it for free for one entire year. But to do this you have to not be married to the idea of one specific vehicle and keep your options open. My brother couldn't care less about that and just wanted something fun on the side.

PS: You should care about the interest rate even though it is a lease where you walk away from the vehicle (not to start that convo again lol) but that interest rate will be directly relevant to the amount you will be paying monthly. And also if you want the choice being able to buyout the vehicle at the end of the lease and sell it privately to get some equity out of it (did this on my dad's Range Rover Autobiography) interest rate will definitely be relevant.

[JohnnyBlaze]

What do you guys think about using a refundable security deposit to lower monthly payments for a lease?

this wouldnt be a down payment and should be fully refundable at the end of the term

[Aleks]

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PS: You should care about the interest rate even though it is a lease where you walk away from the vehicle (not to start that convo again lol) but that interest rate will be directly relevant to the amount you will be paying monthly. And also if you want the choice being able to buyout the vehicle at the end of the lease and sell it privately to get some equity out of it (did this on my dad's Range Rover Autobiography) interest rate will definitely be relevant.

What type of discount did your dad get on the lease rate on the RR?

[Misterman]

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Okay so putting money down on a lease means you're basically pre-paying your payments which in result makes your monthly payments lower. You don't 'lose' any money if you put a downpayment per se as you end up paying the same amount during the entire leasing term regardless. With the down you've just lowered your monthly payments so if low monthly payments is your goal on a lease then putting money down isn't necessarily stupid if you can't think of anything else to do with that.

Good luck. Nobody seems capable of grasping this.

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What could potentially go wrong with putting a large down on a lease is say a few months into the lease you total the vehicle - the insurance is going to pay out the market value and if the market value is pretty much just what the residual is or is an amount significantly less than what you paid, you potentially lose that large downpayment as you won't get it back. I hope this makes sense.

This is going to be incorrect in 99% of cases. A lease company is not going to leave their asset uninsured. It is built right into the paperwork that full replacement insurance is required. So it doesn't matter if you write the vehicle off, you get back every penny you paid.

[rage2]

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This is going to be incorrect in 99% of cases. A lease company is not going to leave their asset uninsured. It is built right into the paperwork that full replacement insurance is required. So it doesn't matter if you write the vehicle off, you get back every penny you paid.

There are 2 types of insurance. Gap insurance, and full replacement value. Gap just covers the gap between value of vehicle and what's owed, in which case shakalaka is 100% correct that you'll lose any down payment you put towards the vehicle. Full replacement value isn't susceptible because you get 100% of the purchase price back.

Gap insurance is mandatory on leases, replacement value is not.

[jutes]

With leasebusters it almost makes more sense to take over some else's contract. I know when I go looking for a new X5 in the near future I'll hit up LB first. I've seen some with cash back and winter wheels/tires. If you don't care about a slightly used lease its a great option.

[Misterman]

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There are 2 types of insurance. Gap insurance, and full replacement value. Gap just covers the gap between value of vehicle and what's owed, in which case shakalaka is 100% correct that you'll lose any down payment you put towards the vehicle. Full replacement value isn't susceptible because you get 100% of the purchase price back.

Gap insurance is mandatory on leases, replacement value is not.

Fair enough. I would hope there is nobody so cheap they would skimp on the 50$ a year for replacement insurance when it comes to leasing.

This saved my ass when our car got stolen. Insurance just cut a check for 54k, I paid out the lease company the 30k we still owed them to buy out the lease. Took the 20k difference and dumped it down on the Benz.

[Misterman]

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With leasebusters it almost makes more sense to take over some else's contract. I know when I go looking for a new X5 in the near future I'll hit up LB first. I've seen some with cash back and winter wheels/tires. If you don't care about a slightly used lease its a great option.

Taking over can make sense. It gets you a lot shorter term, which is valuable to some people. But if they want you to give them a down payment to take over the lease, it's almost always a bad deal. Essentially they got to drive a brand new vehicle with zero repercussions. If someone has downpayment on their lease, that is the depreciation they should be paying if they want to exit the lease early. So I would never give someone cash to take over a lease, as essentially I would be paying payments for a new vehicle that is now used.

[Aleks]

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Taking over can make sense. It gets you a lot shorter term, which is valuable to some people. But if they want you to give them a down payment to take over the lease, it's almost always a bad deal. Essentially they got to drive a brand new vehicle with zero repercussions. If someone has downpayment on their lease, that is the depreciation they should be paying if they want to exit the lease early. So I would never give someone cash to take over a lease, as essentially I would be paying payments for a new vehicle that is now used.

What if they prepaid the whole thing? Or, for what ever reason they put such a huge down payment on it that monthly payments are a fraction of what a new one would be?

This is why rule of thumb is never put a down payment on a lease. It kind of defeats the purpose of it, it makes it harder to get out of it since most potential buyers aren't looking to compensate you for it.

[rage2]

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Fair enough. I would hope there is nobody so cheap they would skimp on the 50$ a year for replacement insurance when it comes to leasing.

This saved my ass when our car got stolen. Insurance just cut a check for 54k, I paid out the lease company the 30k we still owed them to buy out the lease. Took the 20k difference and dumped it down on the Benz.

Replacement value insurance is only cheap the first year. It ramps up huge in subsequent years without them telling you. Lots of people cancel it after the first year because of this.

[killramos]

Yea I would have a hard time keeping it after more than 2-3 years. Still it’s nice to know that if your car is written off you win the lottery haha

[spike98]

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What if they prepaid the whole thing? Or, for what ever reason they put such a huge down payment on it that monthly payments are a fraction of what a new one would be?

This is why rule of thumb is never put a down payment on a lease. It kind of defeats the purpose of it, it makes it harder to get out of it since most potential buyers aren't looking to compensate you for it.

I paid for my BMW lease with a lump sum payment. I had the cash and didn't want a payment for the 3 years. Yes, i could have put it in a HISA and made a few bucks, but i wasn't losing money, just lost opportunity. And that was enough for me because i knew i would have dipped into the money for some stupid reason.

Leasebusters are typically for people that are locked into a lease but need to get out of the car for likely a financial reason. I dont' have an affordability issue with my car because i have no payment obligation thus making it moot that i prepaid the whole amount.

[Misterman]

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What if they prepaid the whole thing? Or, for what ever reason they put such a huge down payment on it that monthly payments are a fraction of what a new one would be?

This is why rule of thumb is never put a down payment on a lease. It kind of defeats the purpose of it, it makes it harder to get out of it since most potential buyers aren't looking to compensate you for it.

It's nothing more than a simple math problem of comparing market value of the vehicle and ensuring you aren't over paying. It definitely makes it WAY easier to get out of a lease if you have put money down on it. Because now you have an attractive low payment. If you have a zero down lease, you'll have to pay someone cash to take it off your hands in most cases, because anyone else can go get the exact same payment on a brand new one.

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Replacement value insurance is only cheap the first year. It ramps up huge in subsequent years without them telling you. Lots of people cancel it after the first year because of this.

Depends on your insurance company perhaps? It's more like 4 years before it gets expensive with my insurance. It is an absolute no brainer.

[Aleks]

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It's nothing more than a simple math problem of comparing market value of the vehicle and ensuring you aren't over paying.

It definitely makes it WAY easier to get out of a lease if you have put money down on it. Because now you have an attractive low payment.

If you have a zero down lease, you'll have to pay someone cash to take it off your hands in most cases, because anyone else can go get the exact same payment on a brand new one.

Agree on first 2 lines.

The last point I will argue that if you got a good deal on a lease and you're half way into it or more you shouldn't have to give any incentive out. If you do, you didn't get a good lease deal, or you have a car that no one wants to have, lease or not.
As you pointed out it's like math problem, essentially buying a used car, with some added lease benefits. Leases are designed so that they cover depreciation and by the time they are done, they need to have a residual that's lower or at least close to market value, otherwise the lease company won't be around long. Given this, unless you're getting rid of a fresh lease your residual plus remaining payments should be close to what the car is worth on the used market.

As far as just walking into a dealer and getting a new lease for that same payment, that's not really a fair comparison, since one is new one is used now. What's left on the lease is thousands less than what the new lease will carry as a lien amount off the lot. It's like saying why buy a 2 year old used car for $30k when I can get a new one for $40k.

[HiSpec]

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What if they prepaid the whole thing? Or, for what ever reason they put such a huge down payment on it that monthly payments are a fraction of what a new one would be?

This is why rule of thumb is never put a down payment on a lease. It kind of defeats the purpose of it, it makes it harder to get out of it since most potential buyers aren't looking to compensate you for it.

What about those up-front lease initiation fee, where it covers the first payment and bunch of fees. I've only heard of this fee from BMW.

[Aleks]

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What about those up-front lease initiation fee, where it covers the first payment and bunch of fees. I've only heard of this fee from BMW.

First payment is ok and pretty standard as that's counted towards your first month. Some will have a security deposit. I've only seen "lease registration/initiation fees" a couple times. I think VW was one of them.

Jeep/Chrysler was a simple setup. No talk of admin, security or any other fee. Just one price and then a payment based on that. Looks like Genesis may be a simple setup too as they roll everything into one price including freight/pdi.

[16hypen3sp]

Just to be clear here... probably a dumb question but just want to make sure and hoping you guys might have knowledge about this. I emailed an accountant but they haven't gotten back to me yet.

I lease a car for commercial purposes. I can claim the lease amount (max $800 per month, $9600 per year) against my TOTAL income for the year. Total income being full time employment income as well as secondary sole proprietor income. Correct?