Have you ever experience the frustration of researching a vehicle, seeing a lease payment quoted on it, and then being quoted a much different and larger payment in person than you expected? You’re not alone! It’s complicated, but have no fear! Below we describe a few tricks that can help you interpret what is being shown, which will allow you to accurately determine the lease payment and eliminate the frustration of being surprised by an unaffordable payment when you call or show up to a dealer.
First off, I should also mention that the sales people hate them even more than you do. They dread the day someone walks in and asks to see the car that corresponds to the lease payment they saw on TV or the OEMs website because it’s always horrifically and unrealistically low. Thus, the response is usually something along the lines of, “we don’t stock that car” or “I do have that vehicle but the money down is double what you thought”.
Our goal with this post is offer some insight into why brands choose to advertise payments this way, along with how you can break them down yourself so you can see what is actually being advertised and hopefully save yourself the headache of driving to the dealer just to find out that the payment is significantly larger than you were initially expecting or were prepared to handle.
Manufacturers love these because it’s their chance to convince those that previously thought their product was out of reach that it isn’t. The goal is to advertise a payment that isn’t outrageous to the common man. This gets more people in the door and the rational is that once someone has the chance to drive said vehicle, they’ll fall in love and be willing to pay much more for it than they initially anticipated because they now see the value. The manufacturers never intend to sell vehicles for the price advertised and in many cases dealers don’t even have a vehicle on their lot that would facilitate such a payment. But it gets people interested and in the door, at which point the sales people can do what they do best — up sell!
So how does one see through this smokescreen? Lets take a trip to a manufacturer’s (OEM) website, on the first page look for a “current offers/promotions” tab, select it, find the vehicle that interests you and then select “lease offers”. You can also look on a local dealer’s website for the same options, they’ll normally have a section similar and will post payments for vehicles that are actually in their inventory. Once you’ve found the car and the advertised lease click the “details” link. It’s here you’ll find all the relevant information that allows you to break the lease down.
2017 Cadillac CT6
To the left is an example disclaimer for an ultra low mileage, 39mon lease advertisement on a 2017 Cadillac CT6 where the payment is $639/mon with $4,729 due at signing.
Ultra Low-Mileage Lease for Qualified Lessees $639/month for 39 months.
$4,729 due at signing (after all offers).
Tax, title, license, and dealer fees extra. $0 security deposit.
Sounds cheap right? (A 72mon loan at 4.5% would be $938/mon with the same money down on this vehicle)
Not quite, the payment is real but the amount due at signing for this particular situation is significantly higher at $7,619.75. Here’s how it breaks down.
The disclaimer says “tax, title, license and dealer fees extra”, meaning they are NOT included in the $4,279 due, they are “in addition to”. For all leases you’re charged a use tax which is in lieu of sales tax and for Minnesota (varies by state) it’s 7.275% of the portion of the vehicle you use over the term of the lease. Or the other side of the residual equation.
Here’s an example:
MSRP $41,565
Residual value 58% (portion of the vehicle you’re not paying for) $24,107.70
Portion you pay for, 42% of MSRP or $41,565-$24,107.70 = $17,457.30 Use tax $1,270.01 (7.275% x $17,457.30)
For our CT6 we don’t know the residual because it changes month by month so the best ballpark to use as a substitute is to multiply the use tax by the total of all the payments, i.e. $639 x 39 = 24,921 x 7.275% = $1,813. *note, this isn’t exact but it will get you very close.
Next is your title transfer fee, which again varies by state, but in MN it’s an aggregate of several fees such as bridge tax and title transfer, and it’s about $150
Your license fees are your “tabs” and in MN it’s about 1.2% of the base value of the vehicle, so for our example it would be about $610. Dealer fees are the acquisition fee and $595 is pretty standard for that. It does vary by brand but assume between $500 and $1000.
*note, in many cases you won’t be charged this until lease turn in because they’ll wave it if you buy or lease another vehicle from them. For this reason I won’t include it in the “true total due”. Unless the disclaimer specifically mentions it’s not included, which it does in the second example, hence the addition of it to the total.
Adding it all up:
Due at signing $4,279
Tax $1,813License $744Title $144.75First payment $639
True Total Due $7,619.75
That’s our number from above and again, hardly insignificant. What if you wanted to keep the due at delivery at $4,279 and roll the rest into the payment? Your payment would go up about $105 to $744, yikes! This is a very common request, and many will also notice that you can pretty much make a lease payment whatever you want by simply manipulating money down vs what is rolled into the payment. And as a general rule, for every $1000 you roll, your lease payment increases by about $30/mon.
This is not unique to Cadillac, below is a second example where I used a lease listed on a local BMW dealer’s website. In our experience BMW is notorious for advertising low payments with massive due at deliveries. As you’ll see, the ad is says $3500 but the true total is $7,923.63, it’s actually more than double!
2017 BMW X5
“see picture on left”
Advertised due at signing $3,500
Tax $1,853.88 ($25,483 x 7.275%) License $792Title $144.75First payment $708Acquisition $925
True Total Due $7,923.63
It gets worse, this includes the $5000 incentive they have advertised as well, if not, you’d be on the hook for $12,923.63 due at signing. So regardless of how you look at it, the amount due is significantly more than advertised, almost 4x the advertised amount down.
Having the ability to read between the lines of an advertised lease payment and see through the smoke screen can save one valuable time and potentially eliminate a little unneeded stress. Hopefully this post has offered some insight into how lease payments are really calculated and empowered you to become a much savvier vehicle purchaser. After all, understanding the structure of your purchase can help you feel at ease about whether you got a good deal or not. Happy searching!
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