Opinion needed on a lease

Shane_Anigans said:

It's not a mythical fairy, it's the leasing company, because they own the car, and charge the lessee a finance charge based on the duration of the lease. If you were to look at table of lease terms and money factors, in almost every single case, the money factors increase with the lease term. The lowest (aka special) lease rates are found in 24/36mo terms, plus maybe 39/42 in some cases.

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adam1991 said:

...for the full amount of the asset.

Not just the part used up by the lessee.

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You're both right and you're both wrong.

You're paying the interest on the full negotiated price, but are only paying that on the lease duration.

Let me give you an example using the Bankrate.com calculator. I've rounded numbers to make it easier to understand.

Negotiated price is $10k. No fees, no tax.
Residual is $5k
Money factor converted to % is 3% (roughly the VW money factor on the GTI)
36 month lease

Monthly payments are $157.
Total interest paid is $675

Now let's look at a purchase - same price, same 3 year period and same 3%

Monthly payments are $291
Total interest is $469

In order to get your monthly payments to $157 you'd be financing $5410 for those 3 years.
Total interest is $254

So, while you're paying 3 years of interest on $10k, you're only paying the monthly payments on the leased amount (negotiated price minus residual).