I understand there are many variables such as the makeup of the lease costs, especially the extra line items, taxes etc. But as a general guideline do you have a target you try and hit as far as RV vs Payments+Cash spent.
I see people on Reddit negotiating good Out-the-door prices as an excellent ‘step-1’ to the buying/leasing process only to see the dealer quoting an RV a few thousand below the out-the-door price, essentially turning the buyers great negotiated price against them on the lease end.
I know it’s not an issue if you are 100% sure you intend to hand the keys back to the finance company at the end of the lease, but it lands you with a heavy residual commitment should you wish to buy or trade to a 3rd party, especially with the tumble EVs are taking lately.
The RV is a known variable from the outset and is not set by the dealer.
The smaller the delta btw the selling price and the RV, the less you pay for your lease. A high RV helps the buyer, unless you plan to terminate the lease early. The dealer isn’t turning anything against the buyer, in this situation.
It is a trade off. Yes, you’re underwater, if you terminate early. But if you have a low total cost for the lease and find the car acceptable enough, that’s good enough for many.
RV is dictated by the lessor/bank and are non-negotiable, fixed, depending on the terms of the lease. No one can change it and there are no exceptions for “adjustments”.
When the RV is high, the lessor is essentially taking on the risk and betting that they will get an asset high in value back at the end of the lease. If not, they eat the loss. Which is the whole premise of leasing… someone else other than you takes that risk.
Of course it can swing the other way too. High RV usually means cheap payments, low RV means you are paying the bulk of the depreciation.
Is there a target? Not really… I’m simplifying a lot here but generally a higher RV is a good thing for lessees.
Thanks for replying, I should clarify, here is an example post I saw on reddit…
Bank declares a Delta of -$2,250 depreciation from Selling Price to RV over 24 months, then quotes the customer $1500 cash down (not DAS) and $355 a month with a MF of say 0.002.
Customer is paying $9,720 for a declared depreciation of $2,250.
Thought experiment (to educate me & reveal my mistakes?)…
Customer covers all DAS fees, leaving only the lease payments…
MF of 0.002 (4.8%)
24 months
cap cost of $39,500 inc sales tax
I think the buyer is paying…
Total Interest - $2,005.22 (Yr #1 - $1,475.57, Yr #2 - $529.65)
Declared Depreciation - $2,250
Total = $4,255.22
Customer spend total ($1500 cash + 24 x $355)= $9,720
$9,720 - $4,255.22 = $5,464.78 <------ what is this difference, rental fee?
You’re mixing up quite a few things here… it would be easier to ask the poster for their deal sheet to break it down. For starters, depending on your state, tax is typically in the monthly payment, not on the total value of the vehicle. Exceptions are TX, VA…
And you noted $1500 cash down (not DAS), which means your first month’s payment and TTL is another ~$1500. Reddit posters just don’t provide enough info…
i’m definitely confused and hoping to understand better, all guidance appreciated, I’m not basing this on something specific to me, just trying to learn how to identify a good deal from slight of finance hand.
Here is the example that started the questions in my noggin, I simplified the figures a little for my post but the question stands, what do you guys think?
OK I did it here, so my numbers were a bit off, but not too wild, the rental charge is the part I was missing, looks to be approx ~8% of the cap cost, is that about average??
Is the thing bothering you that the rental charge seems “high?” The buy rate MF is also set by the bank and can only be marked up a certain amt (I think). It is what it is, so I don’t know if there’s much utility in trying to figure out whether it’s “average.”
My impression is that cars that have an inflated RV also tend to have an inflated MF. The bank has to make money no matter what, I guess?
For most, the point of lease hacking is purely getting the lowest payment possible, regardless of how you get there. If you’re getting hung up on depreciation and whether or not you have equity at the end of your lease, you’re kind of missing the point. Sure there are exceptions, but most of the best lease deals you see in these forums are vehicles you would never ever consider buying at lease end.
Glad I could learn where I was making mistakes in my understanding of how this all comes together.
I don’t think there’s any harm in really trying to understand the mechanics of things, pull them apart and see if you can follow along. I get that some don’t care about that and only the results, I’m just not one of those people.
