When people start asking how to work the calculator and what the numbers mean, I think you should just start linking this.
For electric and hybrid cars that are eligible for federal and state tax incentives, where do we enter this in the calculator? Just part of the reduction from MSRP to selling price? I leased a Tesla last year and when they did their paperwork they used the federal rebate as a reduction of MSRP and the state (NY) acted as cash down. In the end, I don’t see what the functional difference is there, but they were adamant that it was done like that. They passed the federal savings on to me, so I don’t care, but maybe the difference was in how it’s handled for taxes, if the state rebate is a taxed incentive. Anyway, if these two are handled this way it seems like they wouldn’t both get lumped in together at the top of the calculator. Thanks!
If the rebate is being applied up front, it’d qualify as either a taxed or untaxed incentive (depending on if it’s taxed or not in your state). If it’s a post-sale rebate, where you get a check or tax credit after the fact, it applies as a “post-sale rebate”, and only effects the total lease cost, rather than the monthly.
The functional difference here would be that generally a direct MSRP reduction is untaxed where as a cash down rebate is taxed. Varies by state, but my guess is that was the difference.
Hello, new to leasing but have a background in finance and had a question. I’m curious why the money factor (and thus APR) is applied to the sum of Residual Value and Adjusted Capitalized Cost. In theory, isn’t the present value the Adjusted Capitalized Cost and the Future Value is the Residual Value and thus your “financed” piece of the equation is just the Depreciation Amount?
You are not borrowing the depreciation. You are borrowing the average of cap cost and RV. It’s discussed here.
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Residual value and adjusted cap cost are added together as the equivalent apr is being applied to the average value between them. The /2 in the average equation is part of the 2400 factor in the conversion from apr to MF.
This can be seen easier if we do a bit of unit analysis and ask what a rent charge is.
Rent charge is essentially the interest on the loan, as then vehicle depreciates from the adjusted cap cost to the residual value. Now, in a normal loan, there is a higher interest cost early in the loan and it decreases as the lease balance reduces. To simplify, a lease makes this an equal charge to each payment. To do that, it applies the interest cost at the average value between adjusted cap cost and RV.
Let’s call that (adj cap cost + RV)/2
So we know that MF is used monthly and it’s expressed in decimal format rather than a percentage, so we need to convert our APR to a monthly amount and a decimal.
So let’s take our APR and divide by 12 for months per year and divide by 100 to convert from % to decimal.
That gives us APR/1200.
So monthly interest charge = (APR/1200) * ((adjusted cap cost + RV)/2
We can simplify that to monthly interest charge = (APR/2400)*(adj cap cost + RV)
We also know that MF = APR/2400, so we can substitute that in and get
Monthly interest charge = MF * (adj cap cost + RV)
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Got it, that makes a lot of sense. Thank you both.
Thanks for this.
I have a vehicle I’m looking at, it is new, but the issue is, it is a Land Rover with 3000+ miles on it. I figure consumable items like tires and brake pads will be an expensive hit on the vehicle in my lease. I called a service department and I estimate that the cost to change 2 of the 4 tires is $616. The cost to change just the font brakes pads and resurface rotors is $1236. Who knows if I need to change it all.
What is the right way to put this into the calculator? If I adjust the Selling Price, then it doesn’t include the fact that I am taking the full brunt of the repair cost in my lease period. Ideally, I’d like this subtracted from just my total lease cost somehow…
Thanks for this tool and thanks for the help…
The calculator is not really built to accommodate service/maintenance costs.
I’d take the total lease cost from the calculator, then add in those expenses and divide by the number of periods.
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At dealers, is it the case that for a certain lease length, and for a certain miles per year, dealers use a set residual? What I’m trying to figure out is if the residual percentage is set by the manufacturer and a static variable when negotiating. Thus the primary factors that affect the lease that the dealer can fool around with would be selling price and money factor, am I correct in the way I’m looking at this?
The bank sets the residual value and the base MF, aka “buy rate”. The dealer can mark up the MF above buy rate, and that mark up is negotiable, but the buy rate is not.
There are some manufacturers (Acura for instances) that will offer two concurrent lease programs on a vehicle, one at a low MF with low incentives and a 2nd at a high MF with high incentives. In that case, you’d need to determine which is being applied.
Some dealers work with 3rd party banks. They will set their own MF/RV for the vehicle, so if you’re getting different numbers quoted, that may be why.
RV does change with the amount of miles on the lease and can be increased on some brands (Audi, for example) by adding in pre-paid maintenance.
You really need to read all the Leasing 101 articles.
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Sorry, will do.
On the score part of this, there’s a funny pun (not sure if it’s intended):
“This is the lease important output.”
Can you describe why this is not useful, yet it is still there? If this has been discussed, if anyone has a sec and can point me to a link on the discussion, I’d appreciate it. I searched but didn’t see it.
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I wish I could claim it was a pun, but no, just a typo.
Rather that describe why it’s not useful, let’s go through the scenarios of how one would want it to be useful and see if it actually does that.
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Should I buy or lease? - The LH score basically breaks down to the number of years that it would take to pay off the MSRP of the vehicle at the lease payment amount. Surely that means that there’s a number then that represents it’s cost advantageous to lease vs purchase, right? Maybe it’s when the number of years the lease is for divided by the LH score is less than the residual value? But that doesn’t take into account any differences in financing rates available, differences in incentives being applied to purchasing vs leasing, taxes, etc. For it to be a useful number for comparing against purchasing, you’d need to know the actual info for purchasing. It skips all that, so can’t be useful there.
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Is this a good deal? - What most people want this score to be is an indicator if something is a good deal or not. They want to look and see “if I have a score of 10+, I know I’m getting a great deal!”. The problem with that approach is the LH score doesn’t tell you if you’re getting a good deal or if the lease is a good value. Let’s look at a couple of examples… last year, when the Hyundai Ioniqs were the hot deal, a really good deal for someone that was able to stack all of the incentives and rebates might have had a LH score over 30 (I think I saw one deal with a LH score of 132). So John Smith walks into a dealership unprepared and finds himself with an offer, plugs it into the calculator and sees that he has a LH score of 20. Now, if 10+ is the metric for a “great deal”, he thinks he’s getting an AMAZING deal. Instead, he’s overpaying significantly. Likewise, let’s look at something like the Acura TLX. Here’s a car that’s out of date, has a new model on its way, and the manufacturer is throwing huge stacks of cash at. A high LH score is almost a definite on any lease on one, but is it a good value? You may be getting a good price compared to MSRP, but is the car actually worth MSRP or does it lag compared to the competition? I’d argue that the current gen TLX isn’t worth anywhere near the MSRP, so while a the lease may be inexpensive, the LH score is based on an inflated MSRP. Further, some manufacturers like to price their vehicles with a high MSRP and then throw a lot of incentives at them to give the perception of a good deal. Other manufacturers just set the MSRP lower to start with, but then don’t offer big incentives. The first will naturally have a higher LH score, but that doesn’t actually tell you anything.
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How does my deal compare to this other deal someone else posted? - Part of having a repository of shared deals is it gives you a lot of data to search through to baseline what deals are possible, particularly, what one is able to achieve for a pre-incentive discount. For any given current situation, the best deal that you’re going to get is going to be when you maximized the pre-incentive discount, when normalized for other add ons (marked up MF, excess dealer fees, BS add ons, etc). So let’s say that during your searching, you come across a deal from two months ago, across country, on the same vehicle that you’re looking for. The person posting the deal got a 5% pre-incentive discount, qualified for loyalty, costco, and a high regional incentive, and the deal had a LH score of 11. Now, you’re a Sam’s club user, regional incentives have changed because it’s two months later and you’re in a different region, and you only qualify for conquest, but you got an 8% pre-incentive discount. Running it through the calculator, you have a LH score of 8. In that situation, who has the better deal in front of them? You do. Yah, their LH score may be higher, but that’s because their personal situation is different. Their deal may have been a better value due to how the stars aligned for them, but yours is the better deal. The LH score isn’t an indicator of what is a better deal between two non-comparable deals.
So what is it useful for? Well, let’s say you’re shopping for a car and you’ve found two at different dealers. One has a couple thousand more in options than the other, but both meet your needs. You like the extra options, but your goal is to get the best deal possible. All the other lease terms, other than the MSRP, between the two cars is the same. You plug in the deal you have in front of you for both and one has a higher LH score than the other. Now you’re in a situation where that number has some value to you. It’s normalizing the payments between the two different MSRPs to give you an idea of which one is a better deal between the two. This is a rather limited use case, but it does give you some info here. This is also the only use case where looking at the lease price in terms of % of MSRP offers you a useful comparison.
As for why it’s still there? My opinion is that people like to have a metric to poke with a stick and look at, even if they don’t use it properly.
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Hi, thanks for the great resources. I am trying to use the calculator, but cannot for the life of me get the numbers on my lease to match the calculator output. The lease number from calculator says $309, the dealer says $351.
Please see attached. For what it’s worth I am living in Washington DC, leasing from VA.
I would appreciate any assistance you can provide!
Please share your LH Calculation.
