Quote:
Originally Posted by jcunning
The part I disagree on is that the interest charged by dealers is no where close to 2.5%. Lease interest is not as clear cut as regular financing interest and requires more math to figure it out. My wife leased a car and the calculated interest was 6.1%. This was not negotiable by the dealer and it was a provided value by VW credit. I've never heard of the money factor being negotiable by anyone. Please speak out if you experienced differently.
The one point I don't think you really covered is the fact that you are borrowing money to rent a car. This just doesn't make sense. Looking at my wife's last lease agreement, we paid $16,000 to rent a new car for four years. Plus we were charged $350 for "wear and tear" items that had to be fixed on return. $12k was the loan on the depreciation and $4k was the interest charge for this loan.
I could have bought the exact same car, had a much lower interest rate (1.9% vs. 6.1%), and still have some capital in the car to use on the next new car (10K vs 0.) I've done the math and leasing a car isn't a better financial decision for personal use.
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The current Nov '12 special lease rate through VCI/ Audi financial is, indeed, 2.52% and they offer 1.9% financing on a regular loan as well.
Your math and analysis is missing some key components
First, nothing is better or worse until compared to the alternative. You say you paid $16K to rent a car, how would you have fared if you owned it? How much depreciation? Do you know for sure? How much interest? How much sales tax? If you know all of those answers, then make the comparison. $16K may have been a great deal, or you may have been screwed. Hard to say.
Second, your flawed math. Your "loan on the depreciation" (principle) wasn't calculated on $12K as you suggest. That may have been the total depreciation (net capitalized cost minus stated residual) but you also carried that residual for four years without ever touching that principle (by design). Think of it as a loan that takes you from what you paid for the car to the residual value. You may start at $22,000 (capitalized cost) and four years later end at $10,000 (residual) for a $12,000 depreciation. But your first payment's interest was calculated at $22K and your last at $10K. Your average daily balance was roughly $16K.
Using that example but with a real 2.52% rate ($22K cap cost, $10K res, 48 mos, 2.52% MF), the lease payment would be $284/mo
If you had taken a 48 month loan for $22K at 1.9% the payment would have been $476
The lease "saved" $192 per month for 48 mos for a total of $9216, plus whatever opportunity cost from that cash flow. But the loan is paid off and the car should be worth $10K, right? If it is, you're $784 better off with the loan ($10,000 residual minus $9216 difference in payments).
But what if it isn't worth $10K? What if they were wrong and it's only worth $9K?
Now that $784 savings evaporates, and then some.
Plus the cash flow difference each month (put that extra $192/mo towards your mortgage each month and tell me the effect after 4 yrs!).
Plus the sales tax difference.
Sales Tax on Purchase = 7% of $22K purchase price = $1540.
Sales Tax on Lease = 7% of $284 payment each month = $19.88 x 48 months = $954.24
Sales Tax advantage on lease = $585.76
Now do this on a car that costs more than 2.5 times as much as our example
Oh, and your wear-and-tear "penalty" would exist if you owned the car outright and went to sell/trade the vehicle then too. Scratches, tires, dings, stains, more miles, etc devalue a car no matter how they were paid for.
YMMV
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