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Lease ALWAYS equals NO EQUITY because... (archive)

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Posted by wayne on September 27, 1998 at 00:13:06:

In Reply to: More explanation posted by Trev P on September 25, 1998 at 08:48:32:

A lease is calculated like this:

(For the sake of better understanding, I will use sample figures)

Cap cost(selling price)=$33,000
from this, subtract Cap Reduction(actual down payment, not drive off costs)=$0.00
also subtract Residual Value(percentage of MSRP vehicle is expected to be worth at lease end, usally inflated for lower payment)=$22,000
this leaves you total Depreciation at $11,000. Now add to this the rent charge which is a factor based on the total of net Cap Cost and Residual Value=$4000
This now gives us a total of base payments of$15,000. Divided by 24 months our base payment is $600+tax(8.25% here in L.A.) making our total payment (I don't have a calculator with me) about $649.50 a month.

So, you see, you are paying the depreciation on the vehicle only. No equity is being paid into it. In fact, since you pay depreciation evenly over the lease and the vehicle does most of it's depreciating right away, you are always behind. You buy-out is calculated by taking the remaining depreciation to be paid and adding that to the residual value(which was inflated to begin with) and usually a purchase option fee. This almost ALWAYS comes out to much more than the vehicle is worth at anytime before lease end, unless you put a substantial reduction down($5000 or more).
: OK, maybe I should explain a bit more about my situation.
: :
: First, I'm 13 months into a 2 year lease. The car is certainly worth MORE than my buyout, even on a trade. At this time my dealer is only wishing to give me my buyout less $1000. What about any equity still in the car? In my mind I should be getting around 2-3K not a $1000 defecit.
: :
: Maybe I don't understand leasing 100% but you can't tell me a BMW depreciates more than a standard 20% in the first year? My calculation shows a depreciation of 33%!!
: :
: Something is not right here.

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