BigJoe

How does a lease work if the residual value is greater than the amount of the lease. Say. MSRP 52000, Trade in 35000, amount of lease 17000
Value of car after 3 years 30000. Using typical rates etc. most of the lease calculators come up with a negative monthly payment.

MrLeadFoot

First, let me say that I was a Finance Manager for nearly 7 years.

For me to try and help, I meed more info.

Is the car you're trading pure equity? In other words, do you own your trade outright, or is there a payoff? Is there is a payoff, what is the payoff amount? Estimate would work here.

If you own the trade outright, you should NOT lease. Why? Because it does not make sense for you to do so, especially if MSRP is 52k, since you can probably get that car for more like 45k, leaving you a deficit of only 10k.

Secondly, did you know that you are taxed on ANYTHING you put "down" (capitalized cost reduction) on a car when leasing, except for license fees and security deposit, if any? For example, if you put 35k toward a lease you would be responsible for an upfront tax amount on that 35k. Of course, most finance guys will back the tax out of that 35k, and your cap reduction would be the difference. So, in an 8% sales tax county your cap reduction (down payment) would really end up being 32,407.41, and you can kiss that tax amount goodbye forever!

With all this said, the way to take most advantage of a lease is to put as little out of your pocket as possible, even if that means a high payment, since you pay sales tax ONLY on the principal portion of your payment. For example, if your lease payment is $700, and $200 is lease fee, then you only pay tax on the $500 monthly.

Let me know the details and I'll share more insight.

BigJoe

Thanks Leadfoot. I think you cleared it up. I do own my C5 so it would trade for whatever I can get, assuming 35K+. Thinking of ways to get into a C6 so the MSRP is pretty set. I didn't know about the tax thing...

RocketDawg

I just got rid of my first and last lease. I didn't like it at all ... no 'feel' of ownership. I felt like I was always driving a rental.

Others may not think that way, but for me that was enough.

Richin Chicago

IMO leases just plain suck unless you have business to write them off against.

http://biz.yahoo.com/pfg/e16buylease/

repo

They dont have to use all the trade in as equity. They can cut you a check back for part of it.