PDA

View Full Version : Anyone know anything about leases and taxes?


8500 RPM
05-21-2006, 03:19 PM
I have a question regarding leases. I am under the impression that if I lease a new car at X rate and put ZERO money down, I am paying the same TOTAL interest over 4 years if i were to actually put a downpayment.

I know that for a FINANCE, I obviously pay less TOTAL interest because I am borrowing less, but from what I remember, a LEASE I pay same TOTAL interest whether or not I put a downpayment (if compared to a lease where I put down say $5000). If this is the case, what's the point of putting a downpayment just to merely lower my monthy payments?! I'm just essentially pre-paying the lease when I am better off investing that $5000!

Also, my downpayment is not insured if my car becomes a write-off (knock on wood).

Marky_mark
05-21-2006, 09:57 PM
my advice is when your leasing a car only put down the minmum downpayment like you said the more you put down it only lowers your mouthly payments a little you never get your money back when your done with the lease on a car and if the car becomes a write off you walk away with no owning on the car and you still have your $5000 in your poacket or in a bank acount

Robb
05-21-2006, 10:46 PM
On leases, put down 0 (if you know you're gonna walk away at the end)
or if you wanna get your monthly payment lowered, every $1000 you put down, is roughly $20 less on a monthly payment, unless its a really low interest rate.

8500 RPM
05-22-2006, 01:57 PM
Say they don't lower the rate, but is the total payable interest the same after 4 yrs? From what I remember, it's the same capitalized cost that the interest is based on. Whereas, on a finance, you are paying interest on the total you are borrowing, which means that you pay more total interest if you don't put anything down.

topspd
05-22-2006, 11:34 PM
The amount of a monthly lease payment is calculated as a result of 1) cost of vehicle, 2) residual value, 3) 'interest'/lease rate, 4) lease term.

A lease schedule is just like a regular amortization schedule for a loan, except instead of the outstanding loan reaching zero after the final payment, the last payment on a lease schedule ends with the residual value. Each monthly payment is then a blended payment of interest and principal which is applied against the 'borrowed' amount (cost of vehicle - residual value) along with an interest payment on the residual value.

A downpayment on a lease functionally reduces your monthly payments by reducing the 'borrowed' amount. So you do reduce the overall amount of interest paid.

Gilgorm
05-25-2006, 12:55 PM
I agree with "topspd". As the downpayment goes up, the lease payments go down. You do NOT pay interest on your own downpayment. If you intend to turn in the car after the lease expires then definitely go with no downpayment. However, a high downpayment does reduce the monthly cost since you are only paying interest on the amount outstanding (which includes the residual value).
Another point made in an earlier post is also true; the GAP insurance does not cover your down payment--it just pays for the difference in the insured value of the car and the outstanding amount on the lease. But you would never get your downpayment back anyway when the lease expires normally.
Check out a BMW lease ad to get an idea of the various lease amounts.
Personally I pay cash for my cars and pay no interest although I acknowledge I lose the interest I could earn on my money.
Hope this helps.
Own 03 325iT; MB C230 coupe

8500 RPM
05-25-2006, 06:44 PM
Gilgorm, so if you plan to return the lease after it's term, isn't it still advantageous to put a downpayment so that the TOTAL interest is still lower than if you don't put a downpayment at all?

Also, so if the residual is like 44% of XXX, then I'm paying interest for the residual even if I may or may not buy it out? Strange...

Gilgorm
06-03-2006, 03:11 PM
8500 RPM
You are correct. The total interest paid is less if you make a downpayment since the lessor does not charge interest on YOUR money. So if you put $5000 down you would save the interest cost on the $5000.

To answer your second question, YES you do pay interest on the Residual value since you are effectively using the Lessors money (i.e. the car) for the entire lease period. Even though they get their money (the car) back they still want to be paid for the period of time it is in your possession.

Think of it this way, when you put money in the bank you want interest on it for the entire time even though you own the money and could withdraw it at any time. In a sense the bank "rents or leases" the money for the entire time you let them use it.
This is no different when a lessor leases you a car. You are just like the bank and pay the lessor for the privilege of using (leasing) their money (i.e. the car).
Hope this makes sense.