@JR401, it isn't really BS at all. It's math and how banks (Kia Finical in this case) all work. We have talked a lot about leases in other areas of this forum, but the bottom line is, you MUST completely understand how a lease works, and if not, you'll likely get really mad and/or frustrated because you won't get the program and think the dealer or Kia is ripping you off. That's not the case – at all.
Well, actually dealers can rip people off in leases if you don't know how it works, but if you know the numbers and process, they cannot.
How the dealer PROMOTES a lease is another area entirely. I "could" see how a lease program is promoted to you where they suggest "Hey, and you get $6,800 in lease cash from Kia! (or Kia Financial)!). If you think "Wow, that's awesome! I get a $6,800 cash rebate off the MSRP of the car? Where do I sign up?!" Really, that's still on you for not understanding a lease.
NOW... There IS a way to get most all of that $6,800 off the car, but it requires:
A. You lease then purchase the vehicle virtually immediately! Same day is ideal.
B. That requires you have about $20k ready to go. Bottom line, you need cash and like a loan ready to go. And this is why people get into leases instead of purchasing. Largely, they don't save, or life issues where they just don't have the money...
So with that, here is how the lease works:
NOTE: I am not adding in title or delivery charges, paperwork stuff, etc... Here it is with just the car. For this exercise I'm going to run numbers on a GT (since that's what I'm looking at).
GT w/Drive Wise Package MSRP: $41,250
Negotiated Purchase Price (Gross Capital Cost): $38,700 (basically close too or around the Costco Invoice - $500 program)
Adjusted Capital Cost (-$4,800 Lease Cash): $33,900
Residual Value (54% of MSRP): $22,275
Depreciation Amount (Adjusted Capital Cost $38,700 - Residual Value $22,275): $11,625
Okay, so now we have determined the Depreciation amount. THAT is the amount that will be divided by the 36 month lease term, which ends up being: $322.92 a month.
But that is NOT all you will owe per month. RIGHT NOW is when Kia Financial gets that $6,800 back! They are basically loaning you the money and you're giving it back to them over 36 months. Here's how they figure out the interest to charge you in that 36 months:
Rent Charge (Adj Capital Cost $33,900 + Residual Value $22,275): $56,175
Take that $56,175 and multiply by the Money Factor (interest rate) of .00196, and that = $110.10 a month in interest.
NOTE: If you take that Money Factor and multiply by 2400 you get the Annual Percentage Rate of about 4.7%. That's not a great loan, but again, it's on $56,175 and in 36 months! Bottom line: It's bad! IMHO.
Monthly Payment (Rent Charge $110.10 + Base Payment $332.92) = $433.02 per month.
Now, some dealers will throw in their Document fees, all sorts of stuff into the math, the delivery charge of $900, and they are even allowed to add .00004 to the Money Factor to give themselves a little commission boost. It all adds up quickly. All I did was the car by itself nothing more.
Now, do the simple math of 36 months x $433.02 = $15,588.02 and add this to the Residual Value of $22,275 and that equals: $37,863
That is only SLIGHLTY less than what it could be negotiated for or close. And does NOT include $900 for shipping, fees, etc.. Tack on another $1500 to this price and you can buy the car at or less than you could lease, even though they are giving you that $6,800 lease cash! Ooohhh, lease cash, so great - not!
ONE OPTION: I mentioned it up above, but I am going to utilize the program and here is why.
A lease is a loan, just packaged differently. Thus, a bank (Kia Financial) - any financial institution CANNOT charge you interest if you pay against the Principal. That cannot. That is illegal. Period. So, that Rent Charge of $110.10 x 36 months?...
Just pay the first month's payment for the lease. Then immediately pay the remaining 35 months MINUS the Rent Charges for all those months. The result is you save $3,853!
So yu need about $12k to pay the steam of 35 payments. And you'll need cash for the delivery fee, etc... and You'll then need more cash or cash+Loan of around 3% right now via a Credit Union to purchase the now "used" car for it's Residual Value of $22,275.
Right now, I can get that $41,250 vehicle for around $36,000 after all is said and done using the Lease Cash to my advantage. I think like .05% of people out there do this, but it's completely there to do, just no one knows about this, and/or people that buy, buy, and people that lease, lease, and few think to utilize the lease to purchase. But this is how.
Now, the lease needs to be paid off QUICKLY, because the monthly interest rate is NOT A FLAT $110.10. That is the average, but like a home mortgage, this interest is on an amortization schedule, meaning all the interest is front loaded! They want that $6,800 back ASAP. Thus with leases, people suddenly get deals to trade it in at 30 months instead of 36 because Kia Financial has like 95% of all their money back now...
And that interest is not only amortized, it is daily compound interest per month. If you can pay the 35 months steam same-day, it might be $12 or something very low. But if you pay it off quickly it's pretty much peanuts.
I hope this helps you understand the program. And I will pay cash for all the fees and such. Don't want that stuff getting interest for no good reason when I'm buying the car.
