I went to a dealer yesterday to check out a 2020 Discovery HSE. The car at 6700 miles, quite alot. When I got the lease deal on the car, I was surprised at what a terrible deal it was, even after the dealer discounted it a few thousand. When discussing the deal, I saw that the dealer did the lease with 50.07 on the residual (context, lease term: 39 months, 7500 miles). I asked him why the residual was so low. He said it’s because it’s a loaner that has alot of miles. He said land rover financial says that when cars have alot of miles on it, the residual needs to drop. To demonstrate, he put in a non-loaner with no miles, and showed me the residual was adjusted to 53.27 by his computer. Money factor was static across the pricing experiment at 1.224 (rate).
I told him that makes no sense as the discounting on a loaner is totally offset by the lower residual value. There were other problems with the deal (high front end fees), but the residual was the main issue.
I told him no thanks and left, thinking about how I don’t exactly understand the variables involved in computing the residual. I thought it was just lease term and miles per year.
Are residuals on loaners different than residuals on non-loaners?
Yes, most brands have a rv reduction for mileage on loaners. Which makes sense, as one would expect a vehicle to be worth less at the end if it had more miles on it than one with less miles.
Good idea, but then I suppose all my transaction costs are spread out over that shorter period. I liked the color on this discovery, but because it’s not discounted well even with tons of miles, I’ll have to skip out on this dealer car.
Nice talking to you over text last week, thanks for all of your advice.
