While trying to hack a deal, I ran into a situation where the dealer offered a great deal but was not ready to apply MSDs which could have made the deal sweeter. After pondering for some time, I realized that we don’t need to depend on the dealer or the funding FS to do these MSDs especially in this high interest rate environment. Here is how we can work around and potentially save even more.
Find interest rate for US Treasury and/or CD for the period that you would have put the MSD for.
Use nerd wallet or another compound interest calculator to calculate potential interest that will accrue on the amount that you would have put as MSDs
Divide the total interest accrued by the lease term to compute monthly savings on the payment
If the potential savings via treasuries is higher than the savings from putting MSD with dealer/autoFS, do the treasuries.
True but if someone was to put MSDs, they were already considering applying the capital for this specific use (preserve capital but reduce effective interest on the deal).
Yes taxes should also be considered while evaluating the deal.
I did this when I was trying to use MSDs on my recent Mazda lease. I figured that a 3-year note would get me something like 4-5%. My savings account is currently paying something like 5.15%, but that fluctuates with the fed rate. The MSDs worked out to something like an 11% annual rate. So that was a no-brainer. Only problem was that the dealer wouldn’t do it. They said I had to call MFS after the deal was done, and I just never bothered to do that, because I didn’t believe them anyway.
So what did I do? I took the money I would have put down for MSDs, and I paid down my HELOC balance instead. Current interest on that is a whopping 9%, so that’s a good enough return for me. And if I need that money back at any point in the next few years, well…it’s a line of credit, so I can use it whenever I want. (Though it was a lot more attractive when it was 3.25%.)
