Yes, I think that sounds quite reasonable. While I assume some (many?) detractors do mean that a down payment should NEVER be made, I always took it as, “Make sure you realize the potential loss involved and also make sure to factor the downpayment into your total lease cost.”
Agree that a total loss is quite rare. But maybe the leasee has something more interesting/fun to do w/ that $ vs. making a down payment. I also agree w/ the other posters that I think a down payment makes the most sense w/ a high MF.
Car leases have such a low interest rate that I would borrow over MSRP if I could. I’ll take as many loans as you’ll give me at 3% and invest it and get a better return.
As others have said, a down payment only really makes sense if the MF is high. Which should never be the case. If it’s high because your credit is bad, what are you doing trying to lease a new car? You probably have less money to spare/need your current savings, too. It’s likely not a sensible thing to do, even if the savings are attractive. Not a situation anyone should put themselves in. If the MF is high because the dealer inflated it, then you have a bigger issue at hand. Once the deal is fixed, a down payment becomes less attractive.
The maximum loss is your down payment. There are other downsides, though. Opportunity cost is perhaps the main detractor, not any supposed investment returns. People are usually saving money for something. Mortgage down payment, business venture, whatever. That’s why so many people shop for monthly payments with 0 down. Would I put money down to save a significant amount? Of course. Would I ever want to do that over other things? Almost certainly not.
MSDs are not really comparable to down payments besides requiring money at signing. They aren’t “risked” and the return is much, much higher regardless of the MF. MSDs are pretty much always advisable. Can’t say the same for down payments. Does a down payment on a lease make sense, logically or numerically? Sure, if the numbers work out. Would you actually advise anyone to do it in a real scenario? Skeptical.
People are sheep, break it down for them very simple msd = good, ccr = bad.
Ccr has too much downside to make up for any cost saving benefits imo, while yeah you probably aren’t going to total your car, have an airplane fly into it, have it stolen, etc etc There is always the possibility it does happen and then you are basically f*cked.
Say you save $1000 in rent charge after 3 years with a $10k down payment, is it really worth $30/mo to potentially lose $10k
The only scenario I can see the use for ccr is on exotics with the rent charge being high plus on a significant, but again someone would have to do the match on that.
Savings account vs down payment is a faulty comparison though? Savings account is liquid funds you can use for anything, down payments are locked up in the car lease for 2-3 years. You should be comparing it to other forms of low risk non-liquid investments like CDs or short term corporate bonds. Money down only compares favorably to CDs in the current low rate environment.
MSDs generally yield a much higher rate of return than CCRs. Audi MSD yield 8.5%, BMW MSDs yield over 11%! while CCRs usually yield 1-2%. MSDs also have 0 risk of loss unlike down payments.
That’s your personal risk tolerance, which is a fair point and part of a reasoned analysis.
I’m more averse to risk. I would not, for example, take out 80% of the equity of our home and invest it anything, even though our HELOC would allow me to do that and the APR is right at 3%.
I’d rather own the house outright.
Those may be better comparisons for alternatives for depositing the money. I was addressing the source of funds, but I agree with you.
To you. Value is personal, that’s part of the point.
What people? I’m talking about you and me and everyone posting in this thread. We all have different needs and we’re at many different stages of life, and we look at risk/reward from different vantage points.
We are not saving for anything, fwiw.
Nowhere did I say that down payments and MSDs had the same risk profile. Clearly they do not.
Terrible over-generalization. You have to look at the MF to decide (just like with a down payment).
QED.
Yes, this specific example would be worth it to me. I would do the $10k down payment and save $1,080 over the term of the lease.
Then it would no longer falls into your criteria of CCR generating significant savings over the lease, no?
I don’t want to deviate from your thought experiment (if the probability of a total loss is so low, why not calculate all possible savings from all possible up-front payments and save as much as possible).
If you target leases with reasonable-low MF to start, that rent charge difference between $0 DAS and a big CCR is a trip to starbucks (in the early 2000s the highest MF I ever paid on a lease was 0.00146).
Once you have opted to go $0 DAS, all the risk is on the bank, all you owe are your payments. Whether you take a pull-ahead, sell to Carvana/Vroom/trade, or are totaled: if you end your lease even 1 month early, anything you rolled into the lease (eg Y1 registration) you did NOT pay 1/36, which you financed at the MF (mine currently 0.74%)
But given the low probability of a total loss, one should probably not consider that when making a decision.
And if you are going to consider the savings over 60 years of driving, as an owner of several used cars you know there are ways to make that cost lower (buying used, buying new), but I realize you are trying to maximize the utility for the minimum cost.
I’m following to see the math if you get where you want to go. Appreciate the examples others have shared.
