whitex
Well-Known Member
I don't believe this logic is correct. The result is the same whether the 7500 is taken off the cap cost or added to the residual value.
Let's say MSRP is 100k and residual after 3 years is 50% to make it simple. If they add 7500 to the residual, that means the you're paying 42,500 plus associated interest over the term of the lease. If instead the purchase price is reduced, now the 92,500 and the residual 50k vs 57.5k so you're still paying 42,500 plus interest.
You missed 2 things
1. the fact that lease always includes interest on the residual value
2. your residual is higher if the rebate is applied to it, so extra $7,500 if you buy it out at the end
Let me show you what I mean:
Assuming $0 down, 12% APR interest rate, 3 year lease, $100K car, 50% residual, and no sales taxes for easy calculations:
SCENARIO 1: $7,500 applied to the price of the car
residual=$50K, cap cost = $50K-$7.5K = 42.5K
Payment = interest on residual + cap cost reduction + avg interest on cap_cost
= $500 + $1180.56 + $212.5 = $1893.06
over 36 months, you pay 36 * 1893.06 = $68,150.16
if you buy the car out at the end (cash), total payments are $118,150.16
SCENARIO 2: $7,500 applied to residual value
residual = $50K + $7.5K = $57.5K, cap cost = $42.5K
Payment = interest on residual + cap cost reduction + avg interest on cap_cost
= $575 + $1180.56 + $212.5 = $1968.06
over36 months, you pay 36 * 1968.06 = $70,850.16
if you buy the car out at the end (cash), total payments are $128,350.16
See the difference? If you let the car go, you pay $2,700 more, if you buy it out, you pay $10,200 more only because the rebate was added to the residual rather than subtracted from the price. I invite you to find an online lease calculator, fill out the residual and price and verify the numbers yourself. By the way, these numbers are somewhat inflated because I assumed 12% (1% per month) APR, which is unrealistically high for today's market, I just used it for ease of calculations. If your interest rate was 3% the difference is
1. You pay $675 more if you turn the car in
2. you pay $8175 more if you buy the car out at the end of the least (basically you pay the $7,500 since it was added to the residual value - so the leasing company gets it from the government and then from you).
Again, I encourage you to find a lease calculator of your choice that lets you input price and residual, then calculate it yourself, don't just take my word for it.
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