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#109 of 173 Re: Reconciling advertised lease payment with my own calculation [ksrp]
Jul 07, 2012 (8:10 am)
Some fund providers use an interest rate instead of a money factor. When I saw the $795 acquisition fee, I immediately thought of GMAC/Ally Bank who charges a $795 acq. fee. They also use an interest rate. So, here's my question: Who is the manufacturer? GMAC? I know that there are other providers that charge a $795 acq. fee, but I want to make sure whether this is a money factor lease or an interest rate before answering your question.
I assume thast the numbers and all terminology that you provided are correct.
For instance, you stated
"Payment based on capitalized cost of $18,440"
I have no idea what that means. Is that the selling price? Is that the gross cap cost? Is that the net cap cost? Frequently, dealers will erroneously use the term "purchase price" when they really mean "gross capitalized cost". So, there are a lot of questionable things here. For instance, I've assumed that the $18,440 is the net capitalized cost because that's the way most Ads disclose it.
"MSRP $19,550 plus destination charge of $795."
Just doen't make a bit of sense. Another thing that makes no sense is that the Ad states...
"Total payments of $7,160."
Makes no sense because 35 x $199 + $1,999 = $8,964
The $1,999 includes the first payment of $199. Obviously, there is a cap reduction of $1,800 and the 795 acq fee appears to be financed in the lease.
This Ad does not make one bit of sense. I think you need to double check it and ask some questions.
Can you provide a link to the manufacturer's website please?
Let me comment on your calculations...
The average monthly depreciation is actually $178.77... and the average monthly finance charge is $20.22... and so, the money factor works out to be 0.00066424372...
This is a rather strange-looking money factor because the money factor syntax takes the form 0.00XXX and, if rounded, amounts to 0.00066 which yields as payment of $198.87. Usually, the rounding of the money factor is not that extreme. And, although very close, I still get the feeling that this might be an interest rate lease. Another issue is that the residual factor amounts to 61.4% ($12,004/$19550) which is really strange. It should come out to a nice whole number. Something just isn't right.
#110 of 173 Re: Reconciling advertised lease payment with my own calculation [kyfdx]
Jul 07, 2012 (5:31 pm)
Thanks for your response.
Regarding your point about paying MSRP, I was only walking through the calculation with the data in the ad. Just trying it on for size, if you will. We are not yet sure which vehicle we want to get and if it is this one, I will definitely negotiate to bring down the purchase price first.
#111 of 173 Re: Reconciling advertised lease payment with my own calculation [delta737h]
Jul 07, 2012 (6:24 pm)
Thanks for your response, John.
The numbers are terminology are correct. The manufacturer is Mazda and here's the link to the ad. It's the offer at the bottom of this page.
Now your points/questions --
> "MSRP $19,550 plus destination charge of $795."
> Just doen't make a bit of sense.
I don't know why it doesn't make sense. Is it the numbers themselves or the terminology?
> "Total payments of $7,160."
> Makes no sense because 35 x $199 + $1,999 = $8,964
I assumed that 'total payments' refers to payments during the lease duration and does not include the $1,999 payment made at signing. As kyfdx explained, one reasonable interpretation is $1800 + $199 at signing and then 36 payments of $199 subsequently. In which case, 36*199 = 7164, which is close enough to their statement. My original question about the $7160 was why should there be 36 more payments if the initial payment included the first monthly payment. Shouldn't there be 35 more after the first payment? But I will accept kyfdx's explanation.
> And, although very close, I still get the feeling that this might be an interest rate lease.
I did not know that there are different kinds of leases. Please explain 'interest rate lease'. Are most leases some other kind? Does it change the calculation?
Hopefully, you can look at the ad with the link I provided. I appreciate any further comments after you look at the ad.
#112 of 173 Re: Reconciling advertised lease payment with my own calculation [ksrp]
Jul 08, 2012 (4:58 am)
Could not find a lease fitting your description at the Mazda website. Knowing the model may have been helpful. Anyway, I was so focucsed on the $795 acquisition fee that when I saw...
"MSRP $19,550 plus destination charge of $795."
my mind blocked out the word "destination" and all I saw was $795 which I associated with the acq fee. Sorry. Now it makes sense. So, the residual is $12,004 meaning that the residual factor is 59% ($12,004/$20,345) based on a total MSRP of $20,345.
Mazda uses a money factor as opposed to an interest rate. Ally Bank uses an interest rate. Interest rate payments are computed based on an annuity formula similar to the way loan payments are calculated except at the end of the term, there is a residual remaining which is analogous to a loan balance. This results in lower monthly payments than they otherwise would be.
Because of the complexities associated with computing payments using an interest rate, many years ago the concept of "money factor" was introduced which is defined as the estimated interest rate divided by 24. Here's why...
monthly payment ~ (annual int rate/12) x (net cap + residual)/2 + (net cap - residual)/Term
monthly payment ~ (annual int rate/24) x (net cap + residual) + (net cap - residual)/Term
money factor ~ annual int rate/24
(annual int rate/12) = estimated monthly interest rate
(net cap + residual)/2 = average lease balance
(net cap - residual)/Term = average monthly depreciation charge
(annual int rate/12) x (net cap + residual)/2 = average lease finance charge
If we assume an imputed money factor of 0.00066, then the monthly payment, assuming the capital cost of $18,440 is the NET capital cost, is
0.00066 x ($18,440 + $12,004) + ($18,440 - $12,004)/12 = $198.87
which is very close to $199. The bet here is that the NET cap is $18,440 and that the money factor is 0.00066. If so, then the selling price of the vehicle is...
$18,440 + $1,800 - $795 = $19,445
You need to research the selling price for this model vehicle as the selling price is the most important number in a lease. Use Edmunds, and TrueCar...
Total payments of $7,160 does not make sense because you're paying $1,999 at lease inception which includes your first payment of $199 meaning that 35 payments of $199 remain. It also includes an $1,800 capitalized cost reduction. The $795 acq fee is financed in the lease and, therefore, is embedded in the $199 payment. As such, total payments should be....
$1,999 + 35 x $199 = $8,964
Federal regulations (Regulation M- Consumer Retail Leasing) manadate that cap reductions be included in the total of payments as well as the first payment due at lease signing.
Let me emphasize that your first payment of $199 is due at signing and the remaining 35 are due over each of the next 35 months. You're making payments at the beginning of the term instead of at the end which is how loan payments are constructed. Your periodic payments form what is known as an annuity due because the first is paid up front (i.e., due immediately). A sequence of loan payments are what is known as an ordinary annuity because the first payment isn't due until one month from the date the loan is originated.
Regarding your question...
"My original question about the $7160 was why should there be 36 more payments if the initial payment included the first monthly payment. Shouldn't there be 35 more after the first payment?"
There aren't 36 more payments... there are only 35 because you made the first payment at lease inception. Hence, total payments, including the $1,800 cap reduction, should be...
$1,999 + 35 x $199 = $8,964
#113 of 173 bonus cash relative to lease.
Sep 02, 2012 (8:04 pm)
If the monthly lease payment is advertised at X number of dollars a month and the start up fee payment is listed at X dollars of month, what factor does bonus cash mentioned in the incentive have on the payment and down money. If the down payment is $2500 to start the lease and the bonus cash is $1000. does that equate to only $1500 down, or is the bonus cash already factored into the figures already stated?
#114 of 173 Re: bonus cash relative to lease. [c45man]
by kyfdx HOST
Sep 03, 2012 (9:02 am)
In most ads, all of the incentives are already factored into the advertised payment and money down..
I'm sure you can find an occasional exception..
#115 of 173 Trying to understand my leas payments
Oct 18, 2012 (1:25 pm)
I used this forum to try and figure my own payments when negotiating 2 leases (one for my wife, one for me). We ended up being very close to what I was hoping for both on monthly payments and taxes/fees being paid up front.
Now that I am reading through all my lease agreements I am trying to understand all the numbers. I still think I got was I was looking for but I am having trouble making sense of why some of the numbers are represented the way they are or why it is structured the way it is. I want to make sure I am educated on this so when my leases are up I can do better or so I can understand if I made mistakes. Any help would be appreciated.
2013 Sorento EX w/ Premium Plus Package 36 month/15,000 mile
MSRP - 31,075
Residual - 55% or 17,091.25
Agreed price - 29771.02
Taxes - 1232.88 (how did they calculate this?) 7.5% Ontario County NYS Taxes
Acq fee - 595
Gross Cap cost (Price + taxes + acq fee) - 31598.90
Cap cost reduction - 3672.86 (I DON'T KNOW WHERE THIS CAME FROM)
Adj Cap Cost - 27926.04
Money Factor - 0.00117
Rent charge - 1896.25
Monthly payments - 353.64
Amount due at signing
Cap cost reduction - 3672.86
1st payment - 353.64
Title fee - 85
Reg/NYS tire fee - 87.50
Total - 4199 (This is then broken down into 2250 rebate and 1949 actual cash down)
The 2250 rebate comes from 1500 Kia dealer cash and 750 competitive bonus for Mazda owner
So all in all it comes close to what I had calculated as what I was expecting
341.91 payments with the following down
595 acq fee
87.50 reg tire
341.91 1st payment
1091 (tax on rebate and 341.91 monthly payment)
total down - 2200
I will post the numbers on the Optima later. Let's just start with the Sorento if someone is able to shed light on this I would be much appreciated.
#116 of 173 Re: Trying to understand my leas payments [bsyah]
Oct 18, 2012 (9:40 pm)
Your $3672.86 cap reduction is what remains of your $1949 cash down and the $2250 rebate ($4199) after deducting the following charges...
1st payment - 353.64
Title fee - 85
Reg/NYS tire fee - 87.50
Sales tax in NYS is levied on the total of the taxable payments which includes the $595 acq fee as it is capitalized in the lease. In your case, your taxable payment amounts to $317.95. So, your total payment tax liability amounts to 36 x 317.95 x 0.075/(1 - 0.075) or $928.07. Remember that you're capitalizing the sales tax. In addition, tax is levied on the $3,672.86 cap reduction which amounts to 0.075 x $3,672.86 or $275.46.
So far, your tax liability amounts to $928.07 + $275.46 or $1,203.53. Somewhere, your dealer managed to find an additional tax of $29.35 (i.e., $1,203.53 + $29.35 = $1,232.88) which reflects an additional taxable amount of $29.35/0.075 = $391.33. Given the information provided, I have no idea where this came from and so, in order to make an intelligent assessment, I would need to see your lease agreement or, better yet, the dealer's lease worksheet as something is definitely missing. My suggestion to you is to ask the dealer for their Lease Worksheet. Every dealer must submit a copy of this worksheet to the fund provider.
For a detailed description of how consumer retail leases are taxed in NYS, I suggest visiting the following website...
There you will find a comprehensive article detailing the sales tax treatment given to leases in NYS. Except for taxes, which remain questionable, all other numbers are correct.
#117 of 173 Re: Trying to understand my leas payments [delta737h]
Oct 19, 2012 (8:06 am)
Thanks for all that info. I will have to go over it a few times to make sure I understand. I had asked to pay taxes and all fees and not put down any down payment (cap cost reduction) other than paying all taxes and fees. That is why I dont get where the Cap cost reduction number came from. I see how it comes from the down payment and rebate minus fees but how did they calculate the down payment? Seems like a chicken or the egg thing.
Based on what you have said I would have expected to pay 928 + fees. Also does the acq fee have to be capitialized or could it be paid upfront with taxes?
#118 of 173 Re: Trying to understand my leas payments [delta737h]
Oct 19, 2012 (8:23 am)
I guess I had that incorrect. The 928 was based on having CCR of 3672.86. If I actually had no CCR excpet the 2250 dealer rebate (that can be considered CCR right?) then I should have a taxable payment of 359.14? which would be 1048 according your formula? But then my up front payment should have been 1048+85+87.5+359.14 = 1579.64.
Why is the tax calculated by multiplying by .075 and then dividing by 1-.075?
Thanks again for the information on this.