Video: Lease Like a Pro Using the Leasehackr Calculator

Hi everyone, Michael here from Leasehackr.

Today I’m going to answer perhaps the most frequently asked question that I see on Leasehackr.

And that is: “How much should I be paying to lease this particular car? What kind of deal should I be targeting?” 

So in this video, I’ll explain just that. I’ll show you how I use the Leasehackr Calculator to create a target deal to shoot for when shopping for a car.

You’ll find this is a much better approach than randomly throwing out numbers, at a salesperson, unsure if you’ve gone low enough, or if it’s even realistic.

So let’s get started!

DEFINITIONS

Today, I’ll be shopping for a Toyota Camry, but the lessons learned here can apply to any new car. 

Here are some of the terms you’ll need to know.

There’s the MSRP, or the Manufacturer’s Suggested Retail Price. This is basically the price of the car before any discounts. 

Next, we have the agreed upon Selling Price—which is the actual price the dealer is selling the car for. 

We have the Residual Value—which is basically what your car is worth at the end of the lease. The residual value is set by the bank.

We have the Money Factor—which is essentially the interest rate, but for a lease. 

And, sometimes, you’ll have Rebates and Incentives from the carmaker. Think of these incentives as free cash that you can apply towards your lease.

LEASING IS PAYING FOR DEPRECIATION

So how do all these terms relate to each other? Well, let’s take a look.

Say we’re leasing a Toyota Camry with an MSRP of $28,000, but the dealer is selling the car for $25,000. Toyota Financial Services, the bank, thinks this Camry will be worth $16,000 after three years.

Well, when you lease, you’re basically paying for the depreciation that occurs, over time, from your use of the vehicle. If you buy the car for $25,000, and it’s worth $16,000 at the end, then the car has depreciated by $9,000.

To get the monthly lease payment, simply divide the $9,000 in depreciation, by the number of months in the lease, in this case, 36, and you get a lease payment of $250 per month.

Now obviously, this is a very simplified explanation. In the real world, there’s sales tax, fees, and finance charges. You’ll be paying interest on the amount financed.

But this example illustrates the big picture of what leasing is exactly. It’s paying for depreciation.

STEP ONE - MSRP AND SELLING PRICE

So let’s fire up the Leasehackr Calculator -- and see how it works.

This is the Camry I’ve built on Toyota's website. It retails for $29,380, including destination -- so that’s what I enter here, under MSRP, I select “Toyota” as the make. 

The next field is Selling Price. This is a little tricky, because there’s no single rule for what kind of discount to expect. It depends on your location, supply and demand, and so on. For now, let’s just assume zero discount. Not a great deal, but we can play with this later.

STEP TWO - PROGRAM INPUTS

The next section is where you input the residual value and money factor.

For example, here is Toyota Financial Services program for Camry this month. You can learn how to find this data in a future video, linked below. 

For a 36 month, 12,000 mile per year lease, Toyota has set a residual value of 53 percent for Camry. So I select 12,000, and then enter 53 percent. 

The money factor this month is .00001. Basically, no interest, which is great.

I’ll talk about MSDs in a separate video. It’s optional.

Now, for down payment, generally it’s not a good idea to put a down payment on a lease. If you total the car, you could lose that money. So let’s stick with $0 down.

As for incentives, I found that Toyota is offering $1,225 in lease cash. So I enter that under “Taxed Incentives.” Generally, manufacturer rebates that go to consumers are taxed. Incentives that go to dealers are not.

STEP THREE - TAXES AND FEES

The Leasehackr Calculator automatically populates the acquisition fee based on the brand. For Toyota Financial Services, it’s $650. Note that, with some brands, the dealer is allowed to mark up the acquisition fee.

For dealer fees, this is the document fee that dealers often charge to handle paperwork, as well as any dealer add-ons like LoJack or wear and tear insurance.

In California, where I am, document fees are capped to $85 by law, so that’s what I have here. 

Next, we have government fees -- basically, license and registration. Most states have a calculator you can use to estimate fees. In my case, it’s $390, so I enter that here.

And we have sales tax. Enter your rate here. 

In most states, you pay sales tax on the monthly payment. In some states, like Texas and Virginia, you pay sales tax on the entire price of the car -- rather than just the leased portion -- so you would select this button instead.

Finally, if there are any post-sale rebates, you can add them here. For example, if you’re a BMW Car Club of America member, you can apply for a mail-in rebate. Some states offer similar rebates for electric vehicles.

These post-sale rebates don’t affect your lease payment, but you can enter it for your own reference.

OUTPUTS 

Alright, here comes the fun part. Let’s look at the outputs of the calculator!

With no discount, the lease for this Camry will be just under $400 per month, including tax, with about $1,000 due at signing. As you can see, this drive-off amount includes the first month’s payment as well as upfront fees and taxes. 

Here you can see that Toyota Financial Services charges a disposition fee of $350; it’s waived if you lease another car through them, or if you buy out your lease.

And here we have the total cost of the lease -- essentially, what you’ll pay over 36 months.

The Leasehackr Score for this deal is 6.4 years. The higher the score the better the lease. Basically it means that, if you were to keep paying this amount every month, it would take 6.4 years before you’ve spent the equivalent of the MSRP. 

MANIPULATING SELLING PRICE

Now let’s play with the variables we can control -- and see how they affect the lease.

We can definitely adjust the Selling Price. 

I’ve done some research, and it seems that 12% off MSRP, before incentives, is feasible right now on a Camry in my particular region.

This is below dealer cost, so it seems like the dealers here are willing to take a loss on some units, to hit a volume bonus from the manufacturer. 

In a separate video, I’ll explain exactly how you can research selling prices. Discounts vary based on your geography, supply and demand, and so on.

Obviously you want to target a selling price that’s as low as possible, but it also needs to be within the realm of possibility—otherwise, dealers will just shoo you away with your unrealistic expectations.

Anyhow, with 12 percent off, you can see how the lease payment changes. It went dropped from $397 a month to just $291 per month.

MANIPULATING OTHER INPUTS

You can also adjust the allowed mileage. If we select 10,000 miles per year, you’ll see the payment drop.

 If you don’t want to pay anything upfront, you can select “zero drive-off.”

There might also be conditional incentives. Say I’m a recent college grad. Well, Toyota has an additional $500 incentive for recent grads. After adding this to the incentives, the payment drops even further, to $267 per month. 

And there we go! This is the ballpark figure -- of what I would target if I’m shopping for a Camry right now. 

Having researched what’s possible, the next step will be to politely email dealerships and find one willing to do this deal. Keep it short and sweet—no dealer wants to read through your War and Peace. 

And if no one budges, then we may have to readjust our expectations a little bit, and accept the next best offer.

CONCLUSION

So, in a nutshell, this is how you go about estimating what a “good deal” is for a particular car. 

By knowing how a lease works, you’ll be able to create an aggressive but feasible goal that reflects your needs and circumstances.

With all that said and done, there are a few caveats to keep in mind.

First, the Leasehackr Calculator is more of an advanced technique, and it’s only a useful tool if you use it properly and have the correct data.

If there are errors in the inputs, then the outputs of the calculator can be wildly inaccurate, and this will be frustrating to both you and the dealer.

If you have any questions along the way, feel free to ask the Leasehackr community.

Second, these are ultimately estimates. Don’t expect the calculator to match a dealer’s offer down to the exact penny or dollar. There could be small differences in how things are taxed, for example.

And finally, the calculator is not for everybody. Many people probably don’t have the time or, frankly, the interest to use it properly. 

If that’s the case, it’s a good idea to hire a Broker to shop on your behalf. Or you could browse the many off-the-shelf deals on the Leasehackr Marketplace.

Marketplace deals are posted by Brokers and Dealer Representatives who are active in the Leasehackr community, so chances are, these deals are already very aggressive. 

I’ve included links in the description below to all the resources mentioned in this video.

Alright, thanks for watching! Until next time. Take care.