Lease Payment

[catnanny]

Just got my new 2022 Expedition Limited. Pretty nice car and overall very excited +)

However, one thing bothers me is the lease payment which is much higher compared to my own calculation (we signed the contract anyway given it was late night). Would really appreciate if anyone can help us make sense of the monthly payment.

Selling Price: 73k
Trade-in: 12k
Down Payment: 3k
Adj Capitalized Amount: 62k
Residual Value: 46k
Lease Rate: 4.55%; 3yr / 10.5k mi
Depreciation: 16k
Rent Charge: 11k (***This is the part we are questioning)
Base monthly pay: 763

We did some research, and my understanding is rent charge is calculated as below:
- money factor = 4.55 / 2400 = 0.001896
- rent charge = (Adj Capitalized Amount + Residual Value) * MF * Term = ~7372

If the calculation above is correct, base monthly pay will be (16k + 7372) / 36 = 649 (vs. 763 calculated by dealer)

Did I miss anything in the calculation or the dealer calculation is actually correct? Thanks everyone in advance!

 

[rpw2021]

I usually use a different method. See https://www.buerklehonda.com/financing/how-car-lease-payments-are-calculated/

First, seems like given the numbers above, your capitalized cost should be 58k?

Is there a lease tax in your state?

FWIW, I calculate $530.50 as a base monthly payment @ 58k cap cost, or 649.19 @ 62 cap cost.

 

[Hamfisted]

That's just the name they give the "Finance Fee" when you Lease a vehicle. You are using their money up front to acquire the vehicle, and paying back the "loan" principle plus a "finance charge" which they call renting their money. The only way you come out on top is if after 3 years the resale value of the vehicle is substantially less than what they calculated in the contract and you can buy it for that reduced value. I would say if gas prices hit $10 or more a gallon out there they won't be able to give large SUV's away and you can buy it for half what they put in the contract.

Figuring Lease Calculations and Terms





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[rpw2021]

That's just the name they give the "Finance Fee" when you Lease a vehicle. You are using their money up front to acquire the vehicle, and paying back the "loan" principle plus a "finance charge" which they call renting their money. The only way you come out on top is if after 3 years the resale value of the vehicle is substantially less than what they calculated in the contract and you can buy it for that reduced value. I would say if gas prices hit $10 or more a gallon out there they won't be able to give large SUV's away and you can buy it for half what they put in the contract.

Figuring Lease Calculations and Terms





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I usually think of leases differently. The lease agreement includes the residual value, which is the pre-agreed amount you can buy the car for at the end of the lease term. If the car is worth more than the residual value at the end of the term, you "win" because you can buy the car at the lower price.

So a lease/buy decision is basically a decision about who bears the risk of the value of the vehicle in 3 years - assuming interest rates between lease/purchase are more or less the same. If you think the market for large SUVs is going to collapse, then offloading that risk to Ford is a good idea. On the other hand, the scarcity of these cars is not likely to fully resolve itself for 3-5 years, so they may be high-demand items.

 

[catnanny]

I usually use a different method. See https://www.buerklehonda.com/financing/how-car-lease-payments-are-calculated/

First, seems like given the numbers above, your capitalized cost should be 58k?

Is there a lease tax in your state?

FWIW, I calculate $530.50 as a base monthly payment @ 58k cap cost, or 649.19 @ 62 cap cost.

Thanks for the response!

Yes we have lease tax which was added on top of the base monthly payment calculated above.

The cap cost was increased to 61k because first lease payment / registration fee and upfront tax was deducted from the downpay, which seems to make sense.

Sounds like the rent charge is overstated so I should find the dealer to get it corrected... hmm would that be caught when Ford reviews the contract?

 

[catnanny]

That's just the name they give the "Finance Fee" when you Lease a vehicle. You are using their money up front to acquire the vehicle, and paying back the "loan" principle plus a "finance charge" which they call renting their money. The only way you come out on top is if after 3 years the resale value of the vehicle is substantially less than what they calculated in the contract and you can buy it for that reduced value. I would say if gas prices hit $10 or more a gallon out there they won't be able to give large SUV's away and you can buy it for half what they put in the contract.

Figuring Lease Calculations and Terms





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Lease made sense when we placed the order end of last year, but nowadays with rising interest, it's definitely becoming less attractive.

 

[rpw2021]

Lease made sense when we placed the order end of last year, but nowadays with rising interest, it's definitely becoming less attractive.

The key is that the completely unexpected and unprecedented production shortfalls mean that the residual value that Ford is calculating is probably badly out of whack. My car should (fingers crossed) be delivered in a week or so -- it's moving from the local railyard to the dealer now -- and when I went over the lease options, they were assuming a residual value of ~45k after 3 years/36k miles. To me that seems super low, given how few 2022s are going to be produced, and the prospect that the 23s and likely the 24s are going to be very constrained as well. So that made the leases they offered pretty unattractive, IMO.

 

[rd618]

The key is that the completely unexpected and unprecedented production shortfalls mean that the residual value that Ford is calculating is probably badly out of whack. My car should (fingers crossed) be delivered in a week or so -- it's moving from the local railyard to the dealer now -- and when I went over the lease options, they were assuming a residual value of ~45k after 3 years/36k miles. To me that seems super low, given how few 2022s are going to be produced, and the prospect that the 23s and likely the 24s are going to be very constrained as well. So that made the leases they offered pretty unattractive, IMO.

They are hedging their calculations. Early indications are economic slow down and rising fuel prices.
The ability for people to spend 80k on a vehicle in 2-3 years is highly speculative.
It’s easier to propose a low residual and have you over pay the depreciation than them be stuck taking a vehicle back worth less than they thought.

 

[lakerr]

They are hedging their calculations. Early indications are economic slow down and rising fuel prices.
The ability for people to spend 80k on a vehicle in 2-3 years is highly speculative.
It’s easier to propose a low residual and have you over pay the depreciation than them be stuck taking a vehicle back worth less than they thought.

Agree!! My guess is they are shifting risk to consumers not only based on what you say above but also because Ford took a hit with people choosing to buy out their leases and upside completely going to the consumer with high used car prices. They definitely don't want to be the ones left holding the bag on big SUVs in 3 years.

 

[rpw2021]

They are hedging their calculations. Early indications are economic slow down and rising fuel prices.
The ability for people to spend 80k on a vehicle in 2-3 years is highly speculative.
It’s easier to propose a low residual and have you over pay the depreciation than them be stuck taking a vehicle back worth less than they thought.

Yes of course - Ford wants to shift the risk. But the question for the purchaser is whether they're hedging too much, and leaving significant $$ on the table. If they lowball the residual values, the savvy consumer will purchase instead of lease and come out far better in 3 years when they want a new car. But if Ford is right that a 3 yr old Expedition Max Limited will be worth just 45k, then the lease is the way to go. I am buying my car, though I know it means I am assuming the risk of the 3yr value number.

Everyone's risk tolerance and specific financial situation will differ, of course. And my decision tree won't be the right one for everyone. I just just pointing out that the current market for these large SUVs makes modeling the lease-versus-buy decision pretty hard.