Can someone explain to me why the monthly payments go up on shorter term leases. I would think that a shorter lease (24 months) would be cheaper that say a 36 month lease . Shorter lease has a larger residual so why the increase?
Thank You
The depreciation curve flattens over time, so on a 24-month lease you’re paying for more than 2/3 of the first three years of depreciation.
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Over $2000 of the total payments is for Tax , Title , License.
So in shorter periods that $2000 still has to be paid and increases the monthly payment.
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Thanks.
So more depreciation over a 24 month term. But how does that explain a larger residual?
More depreciation per month with 24, not more total depreciation.
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Let’s say 36 month residual is 60% and 24 month is 70%. Do the math on what that means for the amount of depreciation you pay per month and you’ll see pretty quickly why the payment is higher on 24 months even with higher residual. On top of that, interest charge per month is (cap cost + residual) * money factor, so the higher residual $$ means more $$ per month in interest on 24 month lease.
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Different lease terms often have different money factors as well. That can present a significant difference in (monthly) rent money alone. There are typically sweet spots that are encouraged…I.e. 39 month term will have the acquisition fee waived and have the most aggressive money factor.
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