[mjr24]

How is that handled? Let's say my lease payment was 36 months....$700/month.

So...over the life of the lease, the total paid is $25,200.

Let's say they give you $20k for your trade in.....do they subtract that from the $25,200? Meaning I only have to pay $5200 over 36 months?

[vdubturbo]

I use this lease calculator when trying to figure out the details of a lease offer and compare them side by side to other deals.

http://www.ridewithg.com/calculator/index.html

If my memory serves me correctly, any amount put towards a lease (trade in, down payment, cap cost reduction) are all taken off of the negotiated price of the car. Then the lease payments are calculated from there. Because the residual is calculated on a percentage, it's not as straight forward as taking 20g's off the leased amount. Very basically, I would look at it like this...

(Assumes 36 months, 12k/yr, 3% sales tax)
Vehicle Price: $50,000
Residual: 58%
Money Factor: .00125
Payment: $702.54
Buyout: $29k

Now add your trade in, same assumptions:
Vehicle Price: $30,000
Residual: 58%
Money Factor: .00125
Payment: $104.50
Buyout: $29k

Huh, interesting. That's not behaving like I thought. I stand corrected (or the calculator is wrong).

I would have expected to see a payment of about $421 and a buyout of $17,400 after your trade-in. Hmmm.

[iwinit]

You will pay much less than $5200 over the 36 months because of less interest you need to pay.

[Gilgorm]

If you don't want the trade to go toward the lease then they could cut you a cheque for your trade and do the lease just like normal. I buy my cars now but I did this once in the distant past. Just a thought since you get money and the new car.

[mjr24]

Interesting....so I guess the question would be what the wisest thing to do would be?

1-Trade car in with dealer towards lease
2-Trade car in and get check from dealer....pay that towards lease
3-Sell car privately and put down towards lease.

[iwinit]

#3 is obviously the best choice. Last time when I was selling my Toyota Highlanders, Mercedes, Volvo, and Toyota dealers offered me $8000 - $9500. I put it on Craigslist and sold it for $15000 in 2 days. Go figure.

[vdubturbo]

Here's my question... why go with a lease at that point? Generally speaking, putting ANY money down on a lease is a bad idea unless you're planning on buying it out at the end. And if you're doing that along with a large cap reduction, why not just use standard financing to purchase the car?

It takes some calculator math, but typically an interest rate on an auto loan is a much cheaper option than the money factor on a lease.

Just a thought...

[raleedy]

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.