For a BMW one pay lease, the lease calculator is calculating the rent charge as:
MoneyFactor x (SellingPrice + ResidualValue) * 36.
Since you are paying all the depreciation charge up front, I think it should calculate the rent charge as:
MoneyFactor x (ResidualValue + ResidualValue) * 36.
For example, with a MF of .0016, a $50,000 selling price and $27,500 residual, it is calculating the rent charge as .0016 x (50000 + 27500) x 36 = 4464.
I think it should be calculated as .0016 x (27500 + 27500) x 36 = 3168.
Unless there is something out of the ordinary with respect to BMW one pay leases?
We use the standard formula to calculate rent charge when One-Pay Lease is selected:
Total Rent Charge = (Net Cap Cost + Residual Value) * Money Factor * Months
In a One-Pay lease, you pay all fees and taxes on those fees upfront. No fees and taxes are capitalized, meaning they are not included in the Net Cap Cost when we calculate the rent charge and depreciation, both of which are also paid upfront.
To my knowledge, that has never been the formula for rent charge?
This is actually an interesting one. The dealer can elect what fees are considered to be capitalized. They shouldn’t capitalize any fees on a one pay, but dealers often do.
This would explain why some users cannot match their one-pay figure with the Calculator’s.
Obviously, the Calculator is designed to estimate payments only. Each state has its own rules on what are subject to tax (for example, trade-in) and what can/cannot be capitalized. On top of that, dealers often have room to move these figures around. We can only provide a theoretical estimate .
Ya, i have seen one pays for 4xes with all kinds of fees capitalized. On mine, the acq fee was capitalized and nothing else. On others, every fee and tax was capitalized. Can make a pretty big difference in total cost.
In a one pay lease, all taxes and fees are paid upfront including the total depreciation charge. There are no monthly payments. There may be some fees at the end of the lease such as disposition fee, excess miles and excess wear and tear. Since you are paying the total depreciation charge upfront, interest should only be charged on the car’s residual value.
Isn’t the money just kept in a separate escrow account and pulled from every month?
One would think it should be done that way, but it is not.
I don’t think so… why would they do that?
The payment on a One Pay will show as a negative balance on your account and they will draw down a payment each month until the balance hits $0. In event your car is totaled part way through, they will refund you for the unused months.
Very different from a cap cost reduction where they apply the entire down payment immediately.
It is done somewhat that way. It has more to do with accounting & complying w/ GAAP then it does for the consumer. Essentially since it’s pro - rated in the event of an accident or an early lease buy out it would be classified as unearned revenue or something to that effect & then switch over to earned at month end.
Speculation on my part here but I’m pretty sure on this. If someone knows otherwise I’d be curious to learn.
It isnt literally kept in an escrow account, but it gets applied against your account in a way that seems that way to the consumer.
That’s my understanding too. There is no incentive for banks to set your money aside unless it’s legally required too. These are usually very stringent requirements mandating high level of care by the lender. My understanding is that one-pay lease funds don’t fall within that category.
Revenue recognition is different from setting money aside. Just because the revenue is not recognized until lease maturity doesn’t mean that the lender can’t use the money in their account (this has to do with the fungibility of cash).
It’s a lease so it’s certainly classified as an asset so they have the ability to do what they want with it. Perhaps a Reserve account like a manufacturer does with warranty claims?
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