3 Ways To Get Accurate New Car Lease Payments

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Having to deal with a Car or Truck Dealer is hard enough. Some cooperate, but more often than not, it's a miserable experience. And if you're a leasing candidate....**it's going to be even worse.**

Here's why - because there are so *many* leasing options, you typically have no idea if the lease you're thinking about is a good deal or not. What you might think is a fair deal can end-up costing you an extra $1,300 over the lease term.

How's that, you say? Because on almost every car lease written in the U.S., a little "Bennie" is added for the Dealer. Every Dealer has a Software Package that allows the Dealer to add 1% - 8% margin to the deal. In the business, it's called the "Reserve".

How can they get away with that, you say. Well, think of it this way. The Car Dealer is acting as a Broker between you and the Banks. He or She is acting as a Broker by bringing business to the Bank. And as you know, Brokers get paid....in this case with the "Reserve".

So, how do you calculate what your car lease payments will be....and be confident that you're not lining the car dealers pocket with cash? Well, I'll show you three options and give you the pros & cons of each. I'd suggest the following:

- Use an Online Lease Calculator
- Software
- Calculate your Car Lease Payment by hand (I'll show you how)

Using an Online Car Lease Calculator works well (here's a good new car lease calculator) if you're looking to get a ballpark figure on what your lease payment might look like. You'll need to know what the sale price is going to be, your sales tax, cap reduction (down payment) and the money factor (interest rate).

The first three you should be able to handle - the money factor is a little tougher. They're not published and there's only two ways to get it. One, pay for it. Or two, call a Banker. Forget about number 1 - it's expensive. Yet number 2, anyone can do. Call a loan officer at your local bank and ask them what the money factor would be for the term on the car or truck your considering. Then just plug that figure into the car lease calculator.

When you use an online calculator, one of the most important pieces of data you'll need is the Residual Value - and they can vary quite a bit depending on where you live. And getting this figure can be a bear - it's a closely guarded secret. **But not anymore**....I found an online guide. Click this link - new car lease residuals. There you will find every make and model with it's *national* residual average.

Just find the vehicle you're looking at and note the residual values from 36 months and 48 months - and then plug then into the calculators I referenced above. And here's a piece of advice - never lease a car for more than 48 months - 36 months is preferred and 42 months would be the most...and that's only if the manufacturer has a special they're offering. The reason - because residual values drop like a rock after 48 months and you'll just be throwing money away.

Using an online calculator is great, but there is one con: you'll not be able to calculate fee structures and Reserve....and they can be a small fortune. You see, each Bank (or Car Maker) has fee structures that are part of your car lease payments - anywhere from $700 to more than $2000 that's added on a per-month basis. If you add the fee structures and Reserve together, the Dealer could have a lease payment that's anywhere from $864 to $3300 *more* over the term than the lease calculator shows.

Using a calculator is not a bad way to arrive at car lease payments....you'll just need to spend more time negotiating with the Dealer to rein in that payment.

Using a software application to get your lease payments is a great idea. In fact, it's probably the only way you can get an **"Exact, to the Penny"** Car Lease payment. Car & Truck leases are complicated and the variables many, so when you visit a car dealership and ask for lease payments on a vehicle you're considering, they're probably using one of the four large Corporate applications available today.

Yet only one of those applications is made available to the general public - Lease Wizard. It's owned by KEI Inc., and offered in a Windows based consumer version.

If you can surf the Internet, you can use this software - it's that easy.

Lease Wizard's new car lease payment software has been touted in *USA Today, Motor Trend and the New York Times* as being a necessity when looking to lease a car, truck, van or suv. And I agree - here's why.

Because it provides the exact same data the Car Dealer is looking at - down to the last penny. Lease Wizard ties into Local and National Banking Networks and provides the exact payment with all the lease variables and costs included, such as each Lenders residual percentages, money factors, acquisition fees, security deposit requirements, mileage allowances and Terms.

By using a software application, you'll be looking at the same data the Dealer is looking at. If there's any significant differences, you'll know it 's the Dealers Reserve causing the payment to spike. And that's easy enough to overcome - just say **"no"** till you get what you want.

The last time I looked, Lease Wizard was selling for $38.95. I don't know about you, but the math here looks attractive - spend 30-something dollars to save up to $3300. If you know you're going to lease, and are comfortable with the using the Internet, give it a look. It's one of the best investment you'll ever make.

As with the Online Lease Calculator, a free-hand calculation is a good way to get a handle on lease payments.

And again, you will not be able to calculate fee structures and Reserve. Yet, it's beneficial to free-hand a lease so you're able to get a better understanding of it's intricacies.

To estimate Car Lease Payments by-hand, you will need the following information -

- The MSRP, or Sticker Price, of the Cars, Vans, Trucks or SUV's you're considering.
- The Money Factor, or the "Interest Rate" that the Bank, Credit Union or Manufacturer will charge for the Auto Lease. Try to get the money factor from the Bank or Credit Union if you 're talking with outside financing groups. To get a manufacturers Money Factor, you're going to have to depend on the New Car Dealer - go ahead and ask for it if you've already been working with a salesperson.

If you haven't spoken with a Dealer yet, you're not going to be able to get that figure. They simply won't tell you what it is.

You're best bet is to use an interest rate of 6%....and then convert that to a Money Factor. it to a Money Factor.

To convert an interest rate, take .06 (6%) and Divide by 24 - that equals a Money Factor of .0025. Conversely, if you want to convert the money factor to an interest rate, take the money factor and multiply it by 24. In this case, taking a money factor of .0025 and multiply by 24 gives you an interest rate of .06 - or 6%. - Only lease for 36 months/3 years - or to 42 months if it's a Special Manufacturers subsidized lease and the car will be totally
**covered by a warranty for that time**. - Get the Residual Value by calling your Banker or Credit Union Loan Officer. They'll typically give you that information. If you can't get that information, head over to the Car Purchase Blog and post your request for a residual value - you'll get your answer quickly. Just as a reference, most cars, vans, trucks and SUV's have a Residual Value of between 38% and 62% after 36 months.

Here's the most**critical point to remember when thinking about a lease**- do not lease any vehicle unless it has a 36 month residual value of at**least 48% - preferably higher.**The vehicle**is a loser**if it has less than a 48% Residual Value - Check out the Banking Industry Data that some Car Makers hope you never see for more details.

OK - Are you ready? Great....Here we go!

- You first need to start the process of finding out how much of the vehicle you're going to be "borrowing" - in other words, what is it going to be worth in 36 months. For our example, this car has a Sticker Price (MSRP) of $25,000 and a 36 month Residual Value of 55%. So, we take the MSRP of $25,000 and multiply it by 55% - which equals $13,750.
- Whether you've already gotten a Sale Price or not, now's the time to get the best price you possible can - spend a few minutes and learn how to get the best car prices with just a click of your mouse. We've already done that with this scenario - our Sale Price is $22,145. This is known as the
**Capitalized Cost, or Cap Cost**, and includes any fee's that are part of the Car Lease. Subtract the $13,750 Residual value we got earlier and that leaves $8,395.

This amount is known as the**Net Capitalized Cost.**Remember to subtract any and all rebates, incentives and cash/trade amounts if they apply - it will make the Net Capitalized Cost even lower. In this example, there are no additional amounts to subtract so our Cap Cost is $8,395 - the Amount we are**"borrowing"**for our**Car Lease.** - Take the $8,395 and divide it by 36 months - yep, the term of our lease - 36 months/3 years. That equals
**$233.19 a month for 36 months**. THIS is not the total of your payments - we have a couple of more steps before we get that figure. - We now have to figure the
**"Interest"**you're going to pay for "borrowing" that car or truck. Take the $22,145 (capitalized cost) and add the Residual Amount of $13,750 to it. That figure is $35,895. Yes, I know this is a wacked-out formula and doesn't make much sense, yet that's how it's done.

Take that $35,895 and multiply it by the Money Factor of .0025 that we got earlier and we have an amount of $89.74. - Add the $233.19 it will take to "borrow" the car and $89.74 in "Interest" and we get a total of $322.93 a month for 36 months. Now there is only 1 step left - Sales Tax, and that is treated a bit differently that a Finance or Cash Transaction.
- The Sales Tax is treated a bit differently that a Finance or Cash Transaction. Let's say we live in Indiana and the Sales Tax is 6% State-Wide. We take the $322.93 and multiply that by the 6% Sales Tax - which equals $19.38.

Add the**$19.38 Tax to the $322.93....and your total monthly payment will be $342.31 a month for 36 months**

That wasn't so hard, was it.

OK - Here's a quick-and-dirty review.....with less talk!

- The MSRP of the Vehicle = $25,000
- Which is multiplied by the 36 month Residual Percentage of 55% = $25,000 X 55%
- Which equals the Residual Value = $13,750
- Total Sale Price of the Vehicle (the capitalized cost) = $22,145
- Subtract Line 3 (the Residual Value of $13,750) from Line 4 (the Capitalized Cost of $22,145)
- Which equals the amount you're 'borrowing" aka as the Depreciation = $8,395
- Divide Line 6 (the Depreciation amount) by the lease term = 36 months
- Which equals the Depreciation payment to be made monthly for 36 months = $233.19
- Add Line 4 (the net capitalized cost) and Line 3 (The Residual Value) = $22,145 + $13,750 = $35,895
- Multiply Line 9 by the Money Factor of .0025 to calculate the "interest" owed - $35,895 X .0025 = $89.74
- Add line 8 (the monthly depreciation amount) and Line 10 (the Interest) - $233.19 + $89.74 = $322.93 a month
- Multiply the Total from Line 11 by the total tax assessment for your area - i.e. - $322.93 X 6% Sales Tax = $19.38
- Add line 12 (the Sales Tax Assessment) to line 11 - $19.38 + $322.93 =
**$342.31....this is your Total Payment For each of the next 36 months!**

A couple of things to remember about car leases. Like any loan instrument, money down will lower your monthly payment. However, your goal on a car lease is to **pay as little as possible up-front**. After all, you're only "borrowing" the vehicle. Try to spend only $500 - $1500 up-front on a lease - no matter what the Ad's say or what the Dealers tell you. You can structure a Car Lease any way you like.

Remember, calculating a Lease is very simple and only takes a few moments. So do yourself a favor and "punch a calculator" - find out what a Car Lease might be each month.

Oh...one more thing. That same car, at the same Sale Price of $22,145 plus Sales Tax of 6% financed for 60 months at 6% would be **$417 a month** - **$74.69 A Month More** than the Lease.

Savings gained on **leasing versus buying** over that **36 months** - **$2,688.84**.

Vacation anyone?

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