Quote:
Originally Posted by greentrbo95gst
Do we have any lease gurus here that would be able to explain the ins and the outs of money factor and residual relation?
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Technically they are not related...
MF (Money Factor) is basically the interest equivalent for a lease. You can take the factor and multiply it by 24 to get a raw APR factor. EG: .00131 x 24 is .03144. Move the decimal over 2 and you get 3.14%. So a lease with .00131 has about a 3.14% interest equivalent built into each payment.
The residual is manufacturers estimated value at the end of the lease term based on years and mileage allowed. Its a percentage of the msrp of the car. So a 60% residual based 10k miles a year for 3 years(example only) on a 100k msrp car is 60,000. This is the buyout amount at the end of your term and the value used to determine the amount of depreciation one pays during the term. Lets say on that 100k msrp car, the agreed upon price is 100k and the term is 3 years at 10k miles per year. The 60% factor is used and the 100k agreed upon price minus the 60,000 divided by the term (36 months) gets you the depreciation payment.
You then have to add in the interest equivalent monies to the depreciation payment plus any applicable monthly sales taxes. Some states are called "up front states" and the taxes are due up front based on the price of the car. To get this you take the agreed upon value of the car (aka Net Cap Cost) and add the residual to it, take that value and multiply against the MF to get the lease service charge. On the above example, the 100k is agreed upon and the residual is 60k so you take 160000 x .00131 and you get a service charge (monthly) of 209.60. Add this to your depreciation amount and you get the base payment in the lease.
Taxes, Cap Cost reduction, state laws, all play a factor in monies owed up front so I just did a basic example. The residual is set by bank and the MF is credit dependent (tiers set by the banks) and subject to dealer markup (aka reserve). The dealer could get an approval from the bank for a .00131 money factory with the ability to mark it up 1 pt for interest profit paid up front at the time of the lease funding. This could effective make the customers MF .00231 or 5.54% vs the 3.14% that was equal to .00131. This money differential is the advanced to dealer up front via a split (usually 70%). This is all part of the internals but I can easily tell if someone is getting marked up if I have the residual, term, net cap, and base payment.