Finance

Is That Lease Special Really a Good Deal?

“Lease a luxurious Joyrider 3000 for only $399 per month for 36 months!”

Ads for lease deals such as this are fairly commonplace, but how can you know if that lease special is really a good deal? Sometimes they really are, other times they’re loss leaders designed to get you into the showroom so a salesperson can have a shot at pivoting you into something more profitable.

To learn how to figure this out, let’s take a look at that Joyrider 3000 deal.

The Deal Is in the Details  

OK, so the ad says you can get the Joyrider 3000 for $399 a month. Reading the fine print, you see this is based upon a retail price of $36,455. To leave the lot with the car and a freshly inked lease agreement, Joyrider wants you to give them a $2,500 capital reduction (aka down payment), a $400 security deposit and the first monthly payment of $399. Which means you’ll need to be in a position to perform a currency transfer of $3,299 to take the car home.

Detail Number One – The Capital Reduction

Generally speaking, you want to keep this number as low as possible when you’re taking a lease. Why?  Its sole effect is to reduce the monthly payment. However, if something happens to the car and you have to end the lease early, that money will be forfeited. Most financial experts agree you’d be better served putting that money in an investment account from which you make your lease payments. This way that cash is earning money while it waits. On the other hand, though, your monthly payment will go from $399 to $472.00 if you negotiate that $2500 away.

Detail Number Two – Mileage Cap

Like most luxury cars, the Joyrider 3000’s lease deal comes with a maximum allowed mileage of 10,000 annually. We’re talking a 36-month lease, so that means you’ll get a total of 30,000 miles. Here’s the thing though, most people drive more like 15,000 miles a year. That means you’re likely to be some 15,000 miles over the cap at the end of your lease term. Joyrider will charge $0.20 mile for each one over 30,000. This means you’ll owe an additional $3,000, unless you negotiate a 15,000-mile lease, which will up your monthly payment to $502.

Detail Number Three – Sales Tax

The payments you see advertised never include this figure. However, rather than trying to deceive people who run searches looking to “lease a car near me,” they can’t really state the tax because it’s applied differently from state to state, county to county and even city to city.

Some states base it on the full price of the car, others base it on the monthly payment. Within that, tax rates also vary by county and municipality, so the final figure can only be calculated when it’s determined where you live. For the purpose of this exercise though, let’s go with an average sales tax rate of six percent applied to the price of the vehicle. This would make our monthly payment $532.

Detail Number Four – The Price of the Car

Advertised lease specials always figure the price of the car into the deal. In this case, Joyrider is valuing the 3000 at $36,455. However, like any other new car transaction, you do have the right to try to negotiate a better price. As a basic rule of thumb, the monthly payment will decrease by $4 for every $100 you negotiate away. Given this can vary widely, we’ll leave that out for now, but know it’s something you can do when you’re working a lease.

Thus, when all is said and done, our $399 monthly payment is in reality $532. This adds up to a total outlay of $19,552 (including the $400 security deposit), which can be used to satisfy the $400 disposition fee you’ll encounter when you return the car) and you can get another new car in three years’ time.

So, is that lease special really a good deal?

Well, it’s less than the $560.71 monthly payment you’d get after putting down $5,000 and financing a buy over five years at zero percent assuming you can find a special on the Joyrider with those parameters. However, you’d also be looking at $5,000 out of pocket and your credit score would have to let you qualify for zero percent financing.

Calculated based upon a more likely four percent, the payment would be $619.57 for five years, for a total outlay of $39,757 on a sales price of $38,642 (36,455 + $2,187.30 sales tax) and you’d own the car once all of the payments were made.

Whether or not that’s a desired result depends upon your circumstances. However, keeping the above elements in mind and knowing how leasing a car works will help you decide if an offer is right for you.

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