Security Deposit

Can you explain in detail how the 5 refundable security deposit thingy works…?

I live in Wisconsin so I am not sure if some of what is on this site is the same here as it
is in California… although I am only 1 1/2 hours away from Minneapolis St. Paul…


Hi there,

Some brands, such as BMW, Mercedes, and Infiniti, have a Multiple Security Deposit program, which allows you to lower the “money factor” (i.e., the interest rate on a lease) by putting down a security deposit. This will reduce the finance charge and result in lower payments.

For example, BMW’s current MF rate is .00131 (equivalent to 3.14% APR). Each security deposit lowers the MF by .00007. If one were to place 7 security deposits (the maximum allowed by BMW FS), then the MF would drop from .00131 to .00082 (1.97% APR).

Using multiple security deposits (MSD) can save hundreds, if not thousands, over the term of the lease. Unlike a down payment, you get your security deposit back when you return the car.

You can play around with MSDs on our Lease Calculator:

Note that not all manufacturers offer a MSD program and that MSDs are not available in NY.


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I’m new to the idea of MSDs as well and am curious, what are the downsides of using MSDs?
Is there any case where you can’t get the MSDs back (ie: if the car is totalled/stolen, etc.)?

Good question.

Say the car is totaled and your pay-off is $16,000. But the fair market value of the car (i.e., the amount your insurance company will pay) is $14,000. Nearly all leases from a manufacturer come with GAP insurance, which will cover the difference of $2,000. This way, you can walk away from the car without incurring any penalty.

Once the manufacturer gets its pay-off amount back (i.e., residual + remaining payments due), they will return your security deposit.

We prefer a MSD to a down payment (aka, capitalized cost reduction). Say you put a down payment of $2,000 to lower the amount financed. The car is totaled. Assuming the same car, the pay-off amount is now $14,000 (because you paid $2,000 upfront already), and your insurance company pays you $14,000. You can walk away from the lease – but you’ve lost your down payment amount. GAP insurance never kicked in.

The only MSD downside I can think of is the lost opportunity cost of capital… but then again, what investments can get you an ROI of 40%+?


Explain how this would be a ROI of 40%? I still don’t get how giving up a significant sum of money to reduce the money factor a little bit, make any financial sense. Probably why it is not allowed in NYS, because it’s a bad deal for the consumer (we might be a highly litigious state to live in, but there’s a reason, lol).

I get that with each deposit (what is a typical deposit amount anyway, $1k?) it reduces the money factor by .00007 - which if multiplied by 2400 = .16%. If the money factor is low to begin with, then I see even less how this makes sense. But it must be a combination of starting out with a fairly high moneyfactor, and a vehicle with a high cap cost, where every little equation could save you considerably. On a higher end Mercedes or BMW, I might see how this makes sense. On a Honda Civic, I don’t get it.

Guess it’s all moot for me anyway being in NYS, but I want to understand, lol.

The idea here is that your lease is a sunk cost, in that you’re buying it with or without a MSD factor.

Here’s how it works out as an “investment” in that scenario. Really I use “investment” in quote for a reason, as it’s not really an investment. It’s just a reduction in costs of your lease, but if you were to assume you were leasing regardless, it’s a great return.

BMW lease, assume $50k car for 36mo and 60% residual for easier math.

Original MF of .00131
Max MSD MF of .00082

Original MF lease finance charge = $3,772.80 = (50000+50000x0.6)x0.00131x36
Max MSD MF lease finance charge = $2,361.60 = (50000+50000x0.6)x0.00082x36

Monthly payment for this lease would be $621.16, so a $4,550 deposit for max MSD.

This results as if you were to include a MSD, you can reduce your payment (total lease cost) by $1,411.2 and thus a “return” of 31% in the 36 months on your “investment” of a MSD.


I’m still confused. How much is each MSD? Is it 1000 per MSD?

You may be able to find more details in this thread: