I have never bought my car at end of lease, but looking over my lease contract I noticed something interesting. My residual is 60%, which is fine. The Purchase Option at End Of Lease is 60% of MSRP, not 60% of Cap Cost. So if my car was $100k, then the purchase option is $60k. But my Cap Cost after discounts and incentives is $90k. Shouldn’t the purchase option be 60% of Cap Cost($90k) which is $54k and not $60k?
If the Purchase Option is based on MSRP, doesn’t that mean that you have stripped away all the discounts and incentives? Maybe I’m just missing something.
Strangely enough, when I requested a Lease Payoff amount, the total came to my Cap Cost minus the monthly payments I already made. So it looks like it’s based on cap cost, not MSRP like it’s stated in the Lease Contract.
Yup, you’re missing something. Why should the estimated market value of a car be based on the gross or net capcost? The sell price is MSRP less discounts, rebates, etc. which may not provide a true measure of value. Ditto for the gross and net capcost. The gross cap is sell price plus fees capped in the lease which may include taxes, 1st payment, doc fee, acq fee, etc… that have absolutely nothing to do with the car’s value. The net cap is gross cap minus cap reductions and is the amount advanced or funded (analogous to the amount borrowed in a loan) and, again, has little to do with the car’s value. Does the amount borrowed to buy a home necessarily reflect the value of the home?
Lease financing (residualized financing) is similar to a balloon loan where the balloon in a lease is the residual value. The difference is that the lessee does not have to pay the residual balance unless they choose to exercise their buy option. The residual represents the lease balance at the end of the term of the loan. The lease is amortized at the implicit lease rate (similar to APR). At any point in the lease, the unpaid lease balance is the present value of the remaining payments (excluding tax for states that compute monthly tax on the monthly payment) plus the present value of the residual using the monthly implicit lease rate as the discount rate.
Hope this clarifies.
So if you decide to purchase the vehicle after 1 payment, your payoff would be the cap cost and not the residual value plus the sum of the remaining monthly payments?
Generally, it would be the residual value plus the depreciation chunk of the remaining payments plus any buy out fees (and possibly plus sales tax). Often they will quote with MSDs paid into the purchase quote as well.
Granted, these all may vary, so it is best to confirm with the leasing company.
I found this calculation for the rent charge which kind of clears it up. I’ve never leased and it looks like you are charged interest in an interesting way. For our purposes it looks like we would pay a few hundred dollars in rent charge until we pay it off in a month or two. So the payoff is depreciation plus the residual. Do you know what buy out fees there are? Lease disposition fee doesn’t apply since I’m buying the car out, correct? https://www.swapalease.com/lease101/guide/chapters/calculating-your-monthly-lease-payment/#:~:text=Rent%20Charge%20%3D%20(Net%20Capitalized%20Cost,that%20adding%20both%20the%20Net
Net Capitalized Cost $25,000
Residual $15,000
Total Net Cap Cost + Residual $40,000
Money Factor .0025
Money Factor × Total Cap Cost + Residual = $100.00
Monthly Rent Charge (Finance Fee) $100.00
