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      12-28-2012, 07:58 PM   #8

Drives: 2016 228i 6-speed
Join Date: Jul 2005
Location: Portland, Oregon

iTrader: (0)

A lease downpayment, or capital cost reduction (either through cash payment or a trade-in, or through a discount) should not affect the residual value, which should be calculated as a percentage of MSRP. That way, discounts and upfront payments or trade-ins are recovered entirely over the lease term. There's still a risk of early lease termination (most likely because of accidental loss) in which case an actual cash outlay upfront may not be recovered, and the resulting loss may not be covered by insurance or otherwise. That's the main reason why downpayments on leases are not the best idea. In some states, though, the trade-in is tempting because it reduces the amount that is subject to sales tax.