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Old 03-27-2006, 07:47 AM   #1
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Need some financing/leasing ?'s answered

If you lease a used box, how do they arrive at the residual? I'm looking at some used 2005's and '06's. I was just curious if they used original MSRP for the starting point or another figure.

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Old 03-27-2006, 08:41 AM   #2
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The finance companies have formulas that they use based on historical data and auction prices for a particular car. In effect, they are betting on what number they can dump your car at the auction for less reconditioning costs.

Of course, since they are at risk for this guess and the ultimate figure, they try to minimize that risk by betting on a low number. Usually you can buy the car at lease end for the risidual. However, a low residual means a high lease payment.

BTW-this is how BMW can lease certain models for a nice price, they command nice residuals. Ditto Honda and Toyota.

When they guess wrong, they lose. When they guess right, they win.

As you can see, MSRP has little to do with it.

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