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Chairman of the Bored
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Discussion Starter · #1 ·
Many people just want a reasonable lease and don't want to learn all the ins and outs and are not concerned about squeezing every last penny. This thread is for those people.

(1) Multiply the MSRP by .92 to get the approximate dealer cost.
(2) Add $1500 to the answer in (1).
(3) Get the money factor and residual from this forum under August Lease Rates or whatever the current month is.
(4) Use the money factor plus .0002 .
(5) Use $625 for the lease aquisition fee.
Calculate the lease payment as follows :
Example numbers ... MSRP $50,000, residual .6, money factor .00225 .
(1) $50,000 X .92 = $46,000 . < -- Approximate dealer cost.
(2) $46,000 + $1,500 = $47,500 < -- The cost of the car.
(3) Money factor .00225 < -- Money buy rate.
(4) .00225 + .0002 = .00245 <-- Your money factor
Cap cost $47,500 + $625 = $48,125 ( adding the lease aquisition fee )
Residual .6 for 15k mile 3 year lease. NOTE : if you lease for less miles you adjust the residual as explained in the lease rate thread. So the residual is $50,000 X .6 = $30,000
Monthly depreciation $48,125 - $30,000 divided by 36 = $503.47
Monthly interest $48,125 + $30,000 times MF of .00245 = $191.41
Monthly lease payment $503.47 + $191.41 = $694.88 PLUS TAX.
If sales tax is 7% total payment is $743.52
Drive off : 1st month plus $100 for registration or whatever equals $843.52.

I think ? most dealers would do this. On some cars they wouldn't, on entry level cars $1500 may be high. But at least it is fairly simple and I wouldn't be embarrassed with this deal on any BMW. :thumbup:
 

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Ten2Six
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Great stuff, thank you for spelling that out. If this is correct, please sticky.
 

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Very nice. I'd add one thing:

Your money factor (after the adjustment) times 2400 equals approximate cost of the financing implicit in the lease. Using the numbers above:

.00245 * 2400 = 5.88%

For a number of technical reasons, this is only an approximation and should not alone drive your lease/finance/buy-for-cash decision, but it gives you a comparison point.
 

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Chairman of the Bored
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Discussion Starter · #4 ·
Very nice. I'd add one thing:

Your money factor (after the adjustment) times 2400 equals approximate cost of the financing implicit in the lease. Using the numbers above:

.00245 * 2400 = 5.88%

For a number of technical reasons, this is only an approximation and should not alone drive your lease/finance/buy-for-cash decision, but it gives you a comparison point.
Of course I knew that but wanted to keep it as simple as possible.:)

I might have added that you should present your offer as a take it or leave it and not the opening bid. When I was about 35 I wanted a Mercedes 300D and I offered the dealer a lot more than he would have sold the car for because I didn't know his cost. Did he say "thank-you" ? No, he bumped me $200.:p
 

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Chairman of the Bored
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Discussion Starter · #5 ·
I should have mentioned there might be a security deposit required which would add to the drive off. This is waived by BMWFS if you have previously been a customer.
 

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3 pedals only!
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Very nice. I'd add one thing:

Your money factor (after the adjustment) times 2400 equals approximate cost of the financing implicit in the lease. Using the numbers above:

.00245 * 2400 = 5.88%

For a number of technical reasons, this is only an approximation and should not alone drive your lease/finance/buy-for-cash decision, but it gives you a comparison point.
Why is it approximate?
 

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Why is it approximate?
The more exact method involves solving a complex non-linear equation via approximation techniques. It takes into account any up-front payments so that the "solution" reflects the true time-value of money. Think of it this way: many lease contracts may have the same MF, but if they differ in cap cost reductions, security deposits, etc., the "true" cost of funds will also differ.

There are macros available from the Lotus 1-2-3 days, and I assume now for Excel, that will do the messy calculations. I used to assign them in my Financial Mgt classes.
 

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3 pedals only!
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Point taken. If you take a lease and try to analyze it like a loan, it is an approximation. If your looking at the time value the cash paid up front, it's not a good approximation. (However, the same fact applies to a loan.)

However, If you are strictly looking at the APR of the amount financed, it is very close.

There are macros available from the Lotus 1-2-3 days, and I assume now for Excel, that will do the messy calculations. I used to assign them in my Financial Mgt classes.
Let's try one:

You lease a car for $56,000. The residual is $36,000 after 36 months. Interest is 6% (0.0025 MF)

A three year lease is $785.65, totaling to $28,280. Plugging in the sale price, the residual value, and the monthly payment, Excel calculates and APR of 6.027%, which is very, very close to 6%.
 

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Looks right to me aside from the interest calculation. I believe that should be:

(cost - residual) * MF

Or in your example:

(48,125 - 30000) * 0.00245 = 44.40

Which further alters the final cost calculation to be:

(503.47 + 44.40) * 1.07 = 586.23/month

In your example you've got the cost added to the residual to calculate interest, which doesn't make sense to me.
 

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Looks right to me aside from the interest calculation. I believe that should be:

(cost - residual) * MF

Or in your example:

(48,125 - 30000) * 0.00245 = 44.40

Which further alters the final cost calculation to be:

(503.47 + 44.40) * 1.07 = 586.23/month

In your example you've got the cost added to the residual to calculate interest, which doesn't make sense to me.
Yes, that's what I was thinking. $191 would be a lot of interest.
 

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Looks right to me aside from the interest calculation. I believe that should be:

(cost - residual) * MF

Or in your example:

(48,125 - 30000) * 0.00245 = 44.40

Which further alters the final cost calculation to be:

(503.47 + 44.40) * 1.07 = 586.23/month

In your example you've got the cost added to the residual to calculate interest, which doesn't make sense to me.
The original calculation is correct. The residual and the cost are added and then divided by two to get the average amount "financed" over the life of the lease. Rather than spell this out, the MF is based on 2400 rather than 1200. (12 month per year & 100 to put in %age terms.) This is an area that trips everyone up at sometime or another.

Originally Posted by iversonm:

Let's try one:

You lease a car for $56,000. The residual is $36,000 after 36 months. Interest is 6% (0.0025 MF)

A three year lease is $785.65, totaling to $28,280. Plugging in the sale price, the residual value, and the monthly payment, Excel calculates and APR of 6.027%, which is very, very close to 6%
.
Three comments:

(1) Great example. If you then change the cap cost and the monthly payments, keeping the MF, you'll get slightly different IRRs in Excel.

(2) Remember, the Excel calcualtion itself is only an approximate solution.

(3) Technically, you are calculating the IRR that solves the equation. APR is a legal definition for consumer loans in the US. (There are similar, but not identical, concepts in the EU and, separately, the UK.) See http://en.wikipedia.org/wiki/Annual_percentage_rate

All of this gets away from the great effort of the OP to Keep things "simple".
 

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Chairman of the Bored
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Discussion Starter · #12 ·
Looks right to me aside from the interest calculation. I believe that should be:

(cost - residual) * MF

Or in your example:

(48,125 - 30000) * 0.00245 = 44.40

Which further alters the final cost calculation to be:

(503.47 + 44.40) * 1.07 = 586.23/month

In your example you've got the cost added to the residual to calculate interest, which doesn't make sense to me.
My calculation is correct. :thumbup:
 

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Freedom isn't free!!
2018 Glacier Silver 340i M Sport
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Looks right to me aside from the interest calculation. I believe that should be:

(cost - residual) * MF

Or in your example:

(48,125 - 30000) * 0.00245 = 44.40

Which further alters the final cost calculation to be:

(503.47 + 44.40) * 1.07 = 586.23/month

In your example you've got the cost added to the residual to calculate interest, which doesn't make sense to me.
Yes, that's what I was thinking. $191 would be a lot of interest.
The original calculation is correct. The residual and the cost are added and then divided by two to get the average amount "financed" over the life of the lease. Rather than spell this out, the MF is based on 2400 rather than 1200. (12 month per year & 100 to put in %age terms.) This is an area that trips everyone up at sometime or another.
Something to consider regarding the interest - when leasing you are paying interest just as if you were buying with a balloon payment (the residual) at the end. So, you are paying interest not just on the depreciation amount (the rent), but also on the residual amount (in this example $30,000) for 36 months.
 
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