It’s doubtless a win for the consumer, but what’s the advantage to the manufacturers? They’re leaving money on the table––and from some of their most deep-pocketed customers.
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They are basically willing to reduce their interest rates because by putting down MSDs they can use your money during the term, and it helps reduce their risk of taking on your business. They can lower the dealer’s profit margin, thus the reason they don’t suggest using them unless they have to in order to make a deal. Dealers would much rather have you put down a huge sum of money (nonrefundable) in order to lower your monthly payment. If you have the extra cash to put down as security, it’s a no-brainer for the buyer in my opinion.
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Also with MSD, they are hoping for the “if” the leasee loses his job and couldn’t keep up with payment. I’m sure there is a clause where the leasee forfeits the MSD. Notice only the premium brands offer MSD, as their cars are typically high dollar
they can use your money during the term
Can they really make a better return by investing your security deposits than they could from charging the full baseline interest rate?
It seems a weird business model: Investing relatively small sums of money for 2-3 years ( >$10k) doesn’t have appear to have much to do with the automotive financial services business.
And the customers who can afford to put down MSDs are the deepest-pocketed of all: they are least likely to be put off by higher money factors.
MBFS manages and even sells financial instruments similar to a CD
I would imagine the benefit of the MSD payment is they have your $5k - $8K or whatever locked in for your lease term. They give you some fractions off of the interest and in return they get to float that money for the next 2-3 years and make money on it. Their website notes the avg return for an investor is 1.6%, so I would imagine internally they do better. Your individual deposit may not make a huge splash, but in aggregate the hundreds of thousands of deposits can add up.