So lots of talk about using MSD’s to lower one’s monthly payment on a lease. I am conflicted on the idea and would prefer to invest my money elsewhere. Say for example, you have a $500 lease payment. A 7 MSD is $3,500. You would save potentially $25 dollars a month or $900 on a 36 month lease. You would need an annualized return in 3 years of 7.93% (Definitely doable).
Don’t forget you lose three years of compounding interest. No one can answer this question for YOU. It depends on your finances…would I sacrifice emergency savings?? No…would I take out 3500 from play money?? Yes. It’s a financial decision that is a good one to have if you can afford it
I’d rather do MSD than pay inception cost up front. Shields you from loss and tends to provide a decent return on investment.
Invest elsewhere…toss it into a vanguard if you don’t want to manage it yourself
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With Tacoma’s it’s like 30% ROI for short money
No question in certain scenarios
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That’s a really tough question but I think it comes down to if you as an individual has the opportunity to invest it elsewhere. Ie… familiar with investments and have the means to turn that money into More money. Not everyone has that option.
MSDs are relatively safe. But if you think you can use that money elsewhere then it’s just a simple calculation of which you’ll profit from more
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Invest the money elsewhere and it’ll be taxed (for the most part, not counting 401k, etc), so that should also factor into the math.
And where else can you get a guaranteed 7.93% for a 3-year term? At best, a 3-year CD would net you high-2’s if you’re lucky and probably require a $5k or $10k minimum.
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You can exceed an 8% annual return in the stock market, but that is far from a sure thing. Last December we saw most stock funds down 20+ percent in a short period of time.
Not everyone has the cash available, but if you do, it makes sense to me. I’ve used them a couple of times on BMW leases.
Yes, but as mentioned above, you have short/long term capital gains tax. 9/10, you would profit doing MSD’s compared to investing in stocks. Also, you would go to sleep without worrying about the stock market.
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what most people said above…
if you have spare money and the MF is high, MSD is the way to go…
I put $5000 MSD down and it saved me $60 per month, so it was a no brainer for me
Same. The only downside to it is if you are trying to lease transfer it can be a hindrance… Not everyone has $6500 in my case to slap down (saved me close to $2900 over the course of the 3 years)
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IMO, if the return on the MSD is 15% or higher, it seems the decision is quickly confirmed. As noted above, some leases (Tacoma for one) can be over 30%! The lowest return Ive gained was 17%. These are no brainers in my case as there no way to get that type of guaranteed return anywhere else (Bernie Madoff excluded) 
Plus, as many have noted, if you use a 0% interest credit card for the MSDs, the savings get compounded even further (i.e. you don’t even have to pay the MSDs for a year or more depending on the 0% grace period).
Lastly----
I def agree with the comment above that one should not use emergency saving for MSDs. Too risky as the MSD $ cannot be accessed until end of term.
Yeah, for sure.
Did you just make up these numbers? I haven’t seen a real world example where the monthly is $500/mo and you save only $25/mo with MSDs.
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don’t forget a lot of times you can also put MSD on credit card which can net you at least 1% in rewards on certain cards, if not more (i.e. i have the chase freedom unlimited and chase sapphire reserve…if i used my unlimited card at 1.5% back and converted to sapphire reserve points, it’s now an additional 2.25% back towards any travel)
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It can be but if your monthly is at the lower end of what’s possible and your only ask is MSD up front then the right buyer will show up in short order.
That doesn’t make sense in regards to a high MF. Doesn’t matter if the MF is .0028 or .001, MSDs in both cases save the same amount.
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We financed a car purchase about five years ago because my spouse wanted to invest the cash.
About 12 months in, the cash was still sitting a brokerage account collecting dust, so I quietly paid off the note and filed the title away when it arrived.
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These threads somehow always have wrong numbers just to reach a predetermined conclusion.
Great basis for “discussion”
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If the return saves me over 6% a year on the MSD total, it’s a no brainer.
Prob an opinion that gets me flamed, but if you can’t comfortably pay the MSDs and forget about them, you prob should be looking at cheaper cars.
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