it’s not. Maybe it’s easier if you think of two different entities

1. JLR - seeking you the vehicle at MSRP
2. Land Rover finance (really chase)

so chase is giving you a loan of $63000 to finance the vehicle. Let’s say your lease was for 2 years. While they will get back RV at the end of two years, for those two years what they have financed is the whole vehicle value and not just depreciation.

 

But if you look at the the leasehackr example and fill it out with the same parameters, interest rate, amount financed, wipe taxes and fees. If you finance and lease over 24 months at the same rate, with a 50% residual it looks like you're paying more in "rent charge" on the lease then interest on the purchase over the period. Now obviously the interest is going to go down as the outstanding balance on the financed amount goes down, so perhaps the difference is that they are charging you interest as if the entire amount is outstanding for your entire lease term versus an amortization based schedule?

Wish we had some real auto finance folks that could break down in the formula!

 

Here is a rough example for someone in NY

1. Lease is based on current LR terms for base 110: 92% residual value and .00309 money factor (7.4% rate) for .w years/ 10 k lease

2. Buy assumes you can get a car loan at 4%, the bank or credit union tha you get a loan from charges a fee of $600 and at the end of 24 months you can sell the car for 85% of $63k MSRP

in this case two things make the case for lease look stronger

1. sales tax - in NY for lease you only pay the sales tax on lease payments whereas when you buy it, you pay the tax on full MSRP
2. this assumes that the market in two years won’t be as strong as it is today and you can sell the defender for $53500 (85% of MSRP). No one can predict the future and everyone to their own in terms of assumptions

 

But who is JLR really selling the vehicle to? I’ve only committed to paying the depreciation over 3 years, say 20%, why am I on the hook for interest on the other 80%? The way I see it, JLR finance owns the other 80% right? That’s why they sell it to you if you choose to buy it after lease end, and will gladly charge you interest on that 80% if you choose to finance through them.

 

.....the annual use charges in CA (like a registration) are not insignficant.

 

Everyone here is a little wrong.

First of all, the money factor is calculated by dividing the rate by 24, to convert annual to monthly, and cut in half. Then, adding residual to be the capital cost and multiplying by half the interest rate is the same as applying the full interest rate to the average loan amount.

 

if it helps, when I bought mine I ran the numbers side by side of leasing and purchasing. The leasing rates were terrible

My 110 X Dynamic was roughly $80k

lease was quoted at $1470 per month with a residual of about 54% -- $43,100 at 39 months (these numbers were from January)

I chose instead to purchase at 72 months at roughly 3.3%

at 39 months with financing, I will have a balance of $41,700 - which is less than the residual
Also, I can choose to sell anytime between now and then

Barring some flood of Defenders on the market, I feel like I made a wise choice

 

Pretty much think a 3.3% loan is the thing of the past, like 150k starter homes at least for now. Best I'm finding is 4.5-5.14% with excellent credit.

 

True -- so recalculated at 5% interest, payment is roughly $1,390 and balance at 39 months is $42,794

I forgot to put my payment above - it was $1,323 -- so not a huge payment difference

 

Posted the above in a hurry and later realized it probably wasn't clear. Here's another attempt.

With a lease, as with any other rational financial transaction, you're paying interest on the loan balance. In the case of a lease, the principal balance varies between the full purchase amount and the residual at the end of the loan. To calculate the average interest payment, one can therefore use the average principal balance over the term and apply the interest rate to that. Now, the sum of the purchase cost and residual, divided by two, gives you the average principle balance. However, the "money factor" represents half the monthly interest rate (APR / 100 / 12 / 2), so instead of finding the average principle balance, one just multiplies this money factor by the sum of capitalized amount and residual value, without a need to divide by two.

I hope that makes more sense and resolves the "what am I paying interest on" debate!