This is from my current Audi lease, but please note that it’s from the section that covers early termination obligations, and not a general statement on how rent charges are calculated.
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I think @Jeff_BeachCitiesAuto does Ioniq one-pays in California.
Have you reached out to him OP?
thanks. I will
Thanks for this. As I read it, it means that - for Audi - if one paid the entire lease, then the “Balance subject to rent charge” would go to zero. In which case, according to the Constant Yield Method info you provided, the overpaid interest would be refunded. Is that how anybody else reads it?
The writing there talks about the base payments amounts of all scheduled payments that have been due.
If your goal is to make a cap cost reduction equal to the entire value of the vehicle, the contract can’t fund if the adjusted cap cost is below the residual value and typically there are limits on max cap cost reduction amount.
This would be post-signing. So as I read it, if the Balance subject to rent charge went to zero, the finance charge would adjust to zero as well, per the Constant Yield Method. But again, I don’t see any mechanism in a lease to apply that as one would in a loan. Or am I misreading it?
Based on your reading of it, how would you achieve that if the adjusted lease balance is the difference between the adjusted cap cost and the base payment amount of scheduled due payments?
Well, if Balance Subject to Rent Charge declines during the term, and it’s Adjusted Cap Cost - (depreciation and amortized amounts + payments made at delivery/signing) then… paying the difference betweem Adjusted Cap Cost and those amounts would put the Balance subject to Rent Charge to zero. Which would in turn alter future payments by making them Depreciation + Amorization only. Which would mean that amounts paid towards finance charges would need to be refunded per Constant Yield Method.
Because if I pay down the principal in a loan, then then the interest stops accruing. Again, I know a lease. isn’t a loan, but the sales guy says they treat it that way.
All of which is moot if the finance company has no provision to refund finance charges paid in advance.
But the language specifically says its the depreciation portion of “base scheduled payments that have become due”, not random money you sent.
True. Although I would imagine an explanation of how ongoing lease payments are calculated wouldn’t diverge into other scenarios.
I asked the sales guy to confirm and haven’t heard back, which would seem to argue against it working.
Principal in a loan is very different from depreciation portion of a lease. Even if you were to pay the entire depreciation, why would the finance/rent charge be $0? You are still “borrowing” the RV value of the vehicle.
Just to reiterate, that explanation is for how early termination obligations are calculated. There’s a separate paragraph for one-pays, which I omitted to avoid confusion. But here are both together in case there’s interest.
I was speculating that this may give a glimpse into how the rent charges are calculated for the lease in general.
So in my earlier example of making 2x lease payments next month, that wouldn’t reduce the rent charges, any more than making a lease payment four days early would save you four days of rent charges.
Mortgages can work sort of like this too. If your payment is due on the 1st, paying on the 27th of the previous month may not save you any interest, nor would paying on the 7th cost you more. Eventually (15th or 20th ish) a late fee would be applied, but that’s different from additional interest.
Although this is a lease, prepaying the depreciation will indeed force the lease to amortize in the exact same way that loan amortized. Note that the annual lease amortization rare (i.e., constant yield rate) is exactly equal to 24 x MF. So, the dealer is correct. Below is an excel spreadsheet where the total depreciation is prepaid so that the monthly lease charge payment = 2 x MF x RV which is what @mllcb42 stated and can be easily determined by using the MF formula for the monthly payment. In the example below, the monthly rent charge = 16.71. Note that the monthly depreciation payment = 0 as the total depreciation has been prepaid. Below is the amortization schedule.
Mathematically, this is how this should be done. I don’t know whether HMF does it this way or not. Some fund providers do things that make no mathematical or actuarial sense. I think it’s because most software developers are programmers, not mathematicians or actuaries. As such, you may want to get a copy of the HMF lease agreement from the dealer. I do this a lot. They’ll just mark it “copy”.
EDIT:
Alternatively, the calculator solution (e.g., TI-84 which almost every advanced math HS/college kid has) is as follows…
N = 36
I% = 1.200 = 2400 x 0.00050
PV = -16,710.40
PMT = 16.71 Calculated
FV = 16,710.40
P/Y = 12 payments per year
C/Y = 12 number of compounding periods per year
PMT Convention: End of Month. The lease amortizes like a loan in this case.
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Holy crap. Thank you.
Now if I could just get HMF to confirm… but the people on the phone are apparently selected for lack of ability…
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THANKS!
I don’t think God could have said it better!
Question: Is this the same as a cap cost reduction putting Net Cost equal to RV? Or would it apply if I signed the lease at a given monthly, then prepaid after one month?
The issue seems to be whether or not HMF can recalculate lease payment due after the contract is signed - ie, whether paying the entire balance would generate a refund on finance charges paid but not owed.
GL with that, ain’t gonna happen.
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Yes
Once the contract is signed, it’s highly unlikely that it can be restructured. Paying off the entire lease balance will not trigger a refund of earned finance charges You always pay those rental charges one month in advance. Once you get beyond any given payment due date, even by one day, the rent charge for that entire month is considered earned for which there is no refund.
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