997s07

Yup, both the interest curve and the principle curve follow logarithmic functions. But as has been explained by Stul_1, leases are not amortized. You can look at the charges for both the residual value and the deprecation costs as interest only loans.

tgcrun

Actually, a lease is just another form of financing a car purchase. Let's assume the car costs $100,000 and you're putting no money down either purchasing or leasing. Let's also assume the residual value of the car after 3 years is $60,000 for a lease

With a conventional loan you pay both principal and interest on the the entire $100,000 for the entire loan term ultimately amortizing it down to 0.

With a lease you pay interest and principal on just the difference between the purchase price and the residual value, in this case $40,000. In addition you pay just interest on the residual value.

So in the above example with the 4.8% interest rate quoted in other posts, the lease payment would be $1195 (amortization of the $40,000) plus $240 (interest only on the $60,000) for a total of $1435.

The money factor is simply a number that's used to calculate the monthly interest on the amortized ($40,000) and unamortized ($60,000) portion of the cost of the car.

If you go to one of the lease calculators you'll find online, and put in the above numbers with a .002 money factor, you'll get the same payment that I just calculated.

When companies like Toyota want to unload lots of cars, they offer great lease deals by either lowering the interest rate to produce a lower money factor, increasing the residual value, discounting the price of the car, or a combination of the above.

I hope this all helps.

Stil_1

Only thing is that there is no amortization in a lease. As I mentioned making extra payments does not save you any interest like a loan does. It's not really interest in that sense since there is no time factor, just number of payments.

If you look at lease paperwork the rental fee is the same for every payment unlike an amortized loan where the interest charge decreases after every payment.

In technical terms the bank considers it a long term rental and not a car purchase. We consumers just treat it as such due to the way the terms of the rental is laid out.

Chris C.

While Porsche leases are typically not attractive (ever leased a BMW? Much more attractive!0

1. You do have options to use your credit union or finance ompany
2. You can't really compare to the Japanese or American brands who continually use overly discounted lease rates as "trunk money" to move their cars

For the record, I wouldn't have a nice car in NYC, terrible place to try to drive! Some days SF tries my patience, and then in 30 mins I'm on the golden gate heading to the coast or napa. Ahhh

jennifer911

997s07 and Drgek, Mr Clutchplate gave a good rule of thumb explanation of the monthly finance charges back in post #47.

Consider car lease finance charges as two separate loans. The financing of the residual portion for the term of the lease is in effect an interest only loan (returning the car at the end of the lease pays back the principal amount). The loan for the depreciation amount is indeed an amortized loan.

Whenever you guys are negotiating any financial matters that may be a little outside your normal sphere of expertise, always bring me along. I’m sweet, demure and polite, however, a vicious pit bull lurks just below the surface. Kicking the a$$ of your broker, business partners, or car dealer is child’s play to me.

tgcrun

Jennifer911 explained it well. There is amortization. The difference between the cost of the car and the residual value is amortized. That's the reason you can buy the car for the residual value at the end of the lease. In fact, each month the lease statement gives you the amount of the unamortized cost of the car in the event you want to purchase it before the lease ends.

tgcrun

A couple more things to note. PFS sets the residual value, so you have no control over that. They also set the base money factor for top tier credit, which is currently .002. Dealers can up the money factor to make some extra profit on the car, so make sure you get the base money factor. Also, negotiate your best price on the car as if you're purchasing it outright. Whenever I lease a car, I get all the components - list price, my cost, money factor and residual - and do my own calculation.

Stil_1

Sorry, no amortization is the wrong term. I meant how each is treated differently by the bank and how that affects you and how you pay for it.

While all the calculations is how PFS or any bank determines how much money you pay, the one fundamental difference is a Lease is not a loan. In a loan, you borrow the money to buy the car.

In a lease you are borrowing the car. This is why we can deduct taxes on leases for business but not loans since we do not actually have any ownership claim on the car in a lease.

As you mention, we as consumer can treat leases as a form of financing because we have formulas and calculations to equivalence class the two forms, but at the end of the day, the bank considers them two separate things.

In a secured loan, the bank only has you title as collateral. When you make payments, you pay a portion of principal plus interest payment. Next month, your new payment will reflect the new balance on the car.

In a lease, you are not borrowing money, you borrow the car for a set rate. The amount of depreciation and rental fee you pay on payment #1 is exactly the same as the depreciation and rental fee you pay on #36, which again is why there is no reason to pay extra into a lease payment.

if your lease payment is $200, paying $250 a month will not help you pay less money like a loan would, you would still pay the same amount as you would had you paid $200 a month. That can't be said for a loan.

Or another way is if you break down a lease payment. let's say the $200 lease payment. in the lease paperwork it will say something like $150 depreciation, $50 rental fee for a 36 month lease. These payments will remain exactly the same for the full 36 month term. Total rental fee (equivalent to interest rate) will be the same no matter what.

If you break down a similar loan. you break into principal and interest portions. These will not remain the same over time. Principal will be less at the beginning of the loan than at the end, due to how interest and amortizing schedules go. Paying extra in a loan will reduce the total interest paid.

In terms of what others have said, yes you can treat loan and leases as financing, since in consumer terms, they pay a monthly obligation to drive a car at the end of the day. Just be aware of the advantages and limitations of each, no matter what how one is calculated. The posts above are a good resource as explained on how these number are arrived.

EDIT: was wrong about rental fee cost. It is (Net cap cost + residual) * MF. Net cap cost is negotiated price, so yes downpayment will reduce your Rental fee. Only reason downpayment is bad is you are not protected on that amount even with GAP in case of stolen/loss/totaled

KenTO

To clarify, the lease amount is the MRSP - residual amount at the end of the lease. Interest is paid monthly on the leased amount. If I place a larger downpayment on the lease, would that not reduce the interest paid overall?

Stil_1

You are correct, Rental fee is (Net cap cost + Residual) * Money Factor.

Net cap cost is negotiated price after all down payments and stuff, so yes that whole down payment part was incorrect. I have edited to correct that. Downpayment is still not recommended in a lease due to that money being lost if the car is stolen/lost/totaled, etc. GAP won't cover downpayment either.

justabout

The residual is a percent of MSRP but your depreciation is the difference between the residual and the negotiated price. Your lease payment includes the depreciation.

KenTO

Thanks for the info. I am deciding to lease vs purchase the 991.2 Targa. Advantage of lease is that if anything happens to the car accident-wise, it may affect the residual value significantly (If Porsche is anything like Ferrari, the car may never find a buyer at a reasonable price). I also get bored of my cars easily, and I get a new one every 3 years or less.

If I place a large downpayment on the lease, why would that affect insurance if I have GAP protection? Is not the insurance on the sale price of the car, or the cost of replacement if you have GAP protection?

I was thinking about putting $ 25,000 down to reduce interest, as I would have to make about 12 % in the markets to make up for the 5.91 % on the lease. Is this a bad idea, or go with $0.00 down? Thanks.

zer0cool

Porsche leases are terrible...

However the general advice on leases is to pay 0 down if you can. Since you talked about accidents, that's actually a great example.

Let's say you pay 25k down and you total the car 30 days later; well say goodbye to your 25k.

If instead you paid nothing down, then you just paid 1 month of lease payments, gap insurance will cover the difference, and you owe absolutely nothing.

KenTO

Good point, that is what my Google search on the subject is telling me.

Stil_1

Yeah like the above posted about downpayment, GAP is only covers the gap between your car worth and remaining payments.

You are correct in terms of a non loss/total accident. If you insurance covers the repair, depending on who is at fault and which insurance is covering, you may or may not claim diminished value on the car which could offset you lower selling price.

In the case that you cannot claim that, then a lease would be preferable since you can just turn in the car at the end of the lease provided the body shop does good work and just lease/buy another car.