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# LEASING A CAR

\$30,000

\$27,000

\$4,000

## Worth, after Depreciation (Residual Factor) f =

Term (months) M =
Annual Interest Rate I =

## Monthly Lease Payments MD + ML =

magic formulas (found on the Web)
RESIDUAL VALUE = Residual Factor x MSRP

50%
36
8.00%

\$348.89
\$401.22

15%

## (value of car at end of lease)

MONTHLY DEPRECIATION FEE = (COST after REDUCTION - Residual Value) / LEASE TERM
MONTHLY LEASE FEE = (COST after REDUCTION + Residual Value) x Interest Rate /24
"MONEY FACTOR" = (Interest Rate)/24 and ANNUAL INTEREST RATE is expressed as a percentage
TOTAL MONTHLY LEASE PAYMENT = Monthly Depreciation Fee + Monthly Leasing Fee
Compare to borrowing the money: \$23,000 at 8.0/12 % per month so that the balance is \$15,000 after 36 months.
Amount Borrowed=
\$23,000
to buy the car (after down payment)
Residial Value=
\$15,000
value of car after 36 months
Monthly Bank Payments=
\$350.69
so that the balance due is \$15,000 after 36 months
Scenario (1) The dealer sells the car and gets \$27,000. After 3 years at 8.00% per year, this is worth \$34,296 to the dealer.
Scenario (2) They lease the car, receiving \$348.89 per month. Suppose they invest these payments at 8.00% per year.
36 months of these investments are worth \$14,142. The \$4000 down payment is worth \$5081 after 3 years (at 8.00% per year).
Adding: \$15,000 (residual value) + \$14,142 (monthly investments value) + \$5081 (down payment value) = \$34,223.
These two numbers, \$34,296 and \$34,223, should be about the same.

See:

## Three Magic Formulas (from http://home.golden.net/~pjponzo/Car-Leasing.htm)

Dealer's Formula .

More Accurate .

a Bank Formula .

Example

MSRP

\$30,000

Capitalized Cost

\$27,000

Down Payment

\$4,000

55%

Residual Value

36

Interest Rate

8.00%

## = payments for a 36-month loan of \$11,134 at 8.00%

Months

\$312.22

Depreciation Fee =

Leasing Fee =
Enter values in

Lease Payments =

a red box

## x Interest Rate /24

TE is expressed as a percentage
nthly Leasing Fee

Look here

## o that the balance is \$15,000 after 36 months.

to buy the car (after down payment)
value of car after 36 months
so that the balance due is \$15,000 after 36 months
8.00% per year, this is worth \$34,296 to the dealer.
e they invest these payments at 8.00% per year.
ayment is worth \$5081 after 3 years (at 8.00% per year).
) + \$5081 (down payment value) = \$34,223.
http://home.golden.net/~pjponzo/Car-Leasing.htm

ar-Leasing.htm)

\$400.00

\$348.89

\$350.00
\$300.00
\$250.00

\$344.72

\$200.00
\$150.00
\$100.00
\$50.00
8.0%

7.0%

6.0%

5.0%

4.0%

3.0%

2.0%

1.0%

\$0.00
0.0%

\$346.17

\$30,000

\$30,000

\$30,000

\$30,000

\$30,000

\$30,000

\$30,000

\$30,000

\$30,000

\$27,000

\$27,000

\$27,000

\$27,000

\$27,000

\$27,000

\$27,000

\$27,000

\$27,000

\$4,000

\$4,000

\$4,000

\$4,000

\$4,000

\$4,000

\$4,000

\$4,000

\$4,000

50.0%

50.0%

50.0%

50.0%

50.0%

50.0%

50.0%

50.0%

50.0%

\$15,000

\$15,000

\$15,000

\$15,000

\$15,000

\$15,000

\$15,000

\$15,000

\$15,000

0.0%

1.0%

2.0%

3.0%

4.0%

5.0%

6.0%

7.0%

8.0%

36

36

36

36

36

36

36

36

36

\$222.22

\$222.22

\$222.22

\$222.22

\$222.22

\$222.22

\$222.22

\$222.22

\$222.22

\$0.00

\$15.83

\$31.67

\$47.50

\$63.33

\$79.17

\$95.00

\$110.83

\$126.67

\$222.22

\$238.06

\$253.89

\$269.72

\$285.56

\$301.39

\$317.22

\$333.06

\$348.89

Enter values in
red boxes

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