When Two year lease cheaper than three year lease

Off-Ramp
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assume 3 year Residual is r3, 2 year Residual is r2, c = (selling price - incentives + acquisition fee)/ MSRP.
Roughly when c < r3 + 3 * (r2 - r3), 2 year lease will be cheaper. example, r3 = 0.6, r2 = 0.66, rebate =0, then c < 0.6 + 3* 0.06 = 0.78, selling price < 0.78 * MSRP - acq. MF will change it a little bit.
Formula didn’t count acquisition fee waiver.

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Isn’t it easier just to run it through the Leasehackr calculator than to use an equation though? No real point in it IMHO

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The formula is easy to use.

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Jesse_Sun, I love your formulas, ignore the haters!

I find them useful and impressed by your math skillz

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Damn someone finished high school…

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Thank you! Appreciate your encourage!

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Keep in mind that sometimes incentives are different for different terms.

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Good catch.
When rebate are different, chose the minimum rebate,
critical price = 0.78 * MSRP - acq + min(rebate for 3 year, rebate for 2 year)

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With caveats, 2 Year leases tend to be better when the lease incentives are really big.

In that case you are amortizing those whopper lease incentives over a shorter timeframe than for a 3 year lease.

2 or 3 years ago due to this phenomenon there were many $100 (and less) leases available.

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I will stick with the calculator😀

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Yep and it also needs to be atleast 6% or greater RV compared to the 36 month term in most cases.

Good example was the 2020 XC60 T5 Moms brokers were showing last month.

The 30M term was 6 or 7% greater than the 36M term.

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Consider Acquisition fee waiver, when will 2 year lease make sense?
The formula is little complex, but easy to put it into Excel.
Let C = post incentive price / MSRP
d = MF for Acquisition Fee Waiver = 0.0005
R = 3 year lease Residual, for example = 0.6
D = 2 year lease Residual - 3 year lease Residual, for example = 0.66 – 0.6 = 0.06
A = Acquisition fee / MSRP, for example = 0.02
M = money factor * 12, for example = 0.012
Let X = R * (1/6 - d * 12) + A * (1/3+ M) + D * (1/2- M- d * 12)
Let Y = 1/6 + d * 12
Then when C < X/Y, or post incentive price < C * MSRP, 2 year lease will be cheaper.
In example, X = 0.1322267,Y= 0.1726667, X/Y= 0.7657915

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Without Acquisition fee waiver, when will 2 year lease make sense?
Added MF consideration compare to original post
Let C = post incentive price / MSRP
R = 3 year lease Residual, for example = 0.6
D = 2 year lease Residual - 3 year lease Residual, for example = 0.66 – 0.6 = 0.06
A = Acquisition fee / MSRP, for example = 0.02
M = money factor *12, for example = 0.012
Let Z = R + D * (3 – 6 * M) - A
Then when C < Z, or post incentive price < C * MSRP,
2 year lease will be cheaper. In example, Z = 0.75568.

compare to with acq waiver, this Price/MSRP value is lower, Seems use acq waiver in 2 year always better.

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Or . . . (delta between r3 and r2) is less than .12 then 3 year is better assuming all else constant

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This would be more useful in the form of an Excel file or Google Sheet

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Easy to put in excel

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Even easier to just use the Leasehackr Calculator

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Why recreate the wheel when there’s a calculator here already?

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Looks like someone did well in AP Calculus.

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I just do the following for a rough estimate:

Say you’re getting 10% off MSRP, which means you’re paying for 90% of MSRP. Residual is set at 60%. That means you pay 30% of the MSRP. Calculate that number, then divide that by number of months.

It estimates only depreciation, not finance charge, but at least you get an idea of what the lease is like. Takes only a few seconds. You want the selling price and residual to be as close as possible.

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