A common question among consumers who lease a car is how to calculate the true value of their car lease payments when a cash incentive or down payment has been applied. For example, when leasing a new car, or taking over a lease in a swap lease, the consumer may negotiate a monthly lease payment of $250 a month. But what would the monthly payments be if the consumer were able to apply a down payment on their lease? Better yet, what is you were taking over someones lease via a swap lease for the remainder of their lease term and you the lease seller offered a cash incentive of $1000 to take over the car lease? How would this impact your monthly car lease payments? This is what is referred to is the effective payment on a car lease, and I’ll show you a simple way how to calculate the effective payment.
Remember, the effective payment is essentially an upfront cash payment (cash incentive) or a down payment on a car lease is applied the total lease cost and monthly lease payments.
Calculate the Effective Payment on a Car Lease
To calculate the effective payment of a lease, lets walk through this example. Lets say your assuming or taking over a lease through a swap lease or a someone else’s lease. The monthly car lease payment is $500, and 20 months remain on the lease.
Now, lets say the individual seeking to get out of a car lease (lease seller) is offering a $2,000 cash incentive to you to take over their lease. Note, many consumers have their reasons to get out of a lease (financial issues, loss of job, buying a new home or new baby on the way and need the cash) so it’s not a bad thing to take over a lease. Actually, it can be a great opportunity for someone to take over another persons lease through a swap lease as the cash savings and other benefits can far outweigh a new lease. But I’ll cover that in another post.
So lets say the lease seller offers you $2,000 to take over their lease. Now take the $2,000 cash incentive and divide it by the remaining 20 months. $2,000/20 = $100 / month. The $100 is the cash incentive ‘per month’ you’ll receive. Now subtract the $100 from the original monthly payments of $500, and you get an effective payment of $400 per month ($500 – $100 = $400).
As you can see, calculating a car lease effective payment is quite easy. But now lets say instead the lease seller who wants to swap their lease is not offering a cash incentive to take over the lease, and you really want this vehicle, but still need to bring down the monthly lease payments. In a situation as this, you could arrange with the lease company to pay a down payment on the remainder of the lease. A down payment is similar to a cash incentive to bring down the monthly lease payments, but calculating the effective monthly payment is a little bit different.
Calculating the effective payment of a lease when a down payment is offered, lets run through this example.
To keep is simple, lets say your going to put a $2,000 down payment on the car lease instead of a $2,000 cash incentive as the previous example. With all things even, the monthly lease payment is $500 before any cash bonus or cash incentive is applied.
Now divide the $2,000 down payment by the remaining 20 months left on the lease to get the effective monthly payment of $100. Now, since this is a down payment (from your own pocket) instead of a cash incentive (from the lease sellers pocket), the effective payment is $600.
Remember, the effective payment is an approx. value. as sales tax will vary from location to location.
Questions or got an lease transfer or dealership experience to share? Comment below to share with others. And if you found this helpful, we humbly as you acknowledge it by simply clicking the Google +1 button or Facebook ‘Like’.