Quote:
Originally Posted by bradleyland
I've run the numbers. I run them every time I buy/lease a car.
1) It is extremely rare to see a lease interest rate that is lower than a financing rate, unless you're financing for a longer term.
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Sort of. Single-pay lease rates are extremely low, close to a zero percent interest. I ran a calculation for my M3 comparing the lowest finance rate I could get from BMW (1.9%) against a lease-purchase scenario using a single-payment lease. The money factor for single-pay lease was so low it actually does wind up cheaper to lease for three years then buy the car, rather than to buy the car outright. And if I decide to return the car in 3 years, I'll have spent less over the three year lease than I would have over three years of a 5-year financing term.
Quote:
Originally Posted by bradleyland
In a lease transaction, the finance company is guaranteeing the residual, which represents risk. This is why interest rates on leases are higher. In a traditional financing scenario, the only risk being taken by the finance company is whether or not you'll make the payments. More risk = higher rates.
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In a lease transaction the company is guaranteeing the residual, true, but they are also still financing the risk that the lessee won't make payments. That doesn't go away with a lease, it just gets layered on top of the residual risk. Maybe that's what you meant, just clarifying.