Car shopping wisdom says that you could save big by choosing a leftover when a new model comes out. Dealers are more likely to discount the previous generation and make room for the refreshed car on the lots. However, when shopping for a lease the older car might not be the best value.
After conducting a nationwide analysis of various lease prices, Swaplease.com says consumers can often get a better lease deal if they opt for the incoming model year.
For example, consumers can lease a 2015 Toyota Camry for $293.71 per month, compared to a new 2014 model priced at $319.22. A 2015 Chevrolet Malibu lease is priced at $246.21 per month, while a new 2014 model is priced at $319.74.
The reason for the lease payment difference has to to with the residual or resale value of the vehicle. One of the primary factors that determines a lease payment is the selling price of the vehicle over the residual value. Your payments are mostly based on the difference between the two, divided over you lease term.
There are other things like money factor, inception fees, that also impact the payment but for the sake of simplicity it works like this -
(Note: The following numbers are for comparison purposes and are not reflective of actual lease payments)
If you have a 2015 Camry SE that has an approximate MSRP of $25,000 and a 3 year residual value of $18,000, that equates to a $7,000 difference. Divide that seven grand over 36 months and you are looking at approximately $194/mo. Now if you have a 2014 Camry SE with an approximate MSRP of $25,000 but due to the fact it is the previous model year and "older" body style, it may have a 3 year residual of $16,500. That equates to a $8500 difference and when divided over 36 months, that would result in a payment of about $236/mo.
Now this is all based on both the 2014 model and 2015 model having the same selling price. If the dealership really wants to move the 2014 car off the lot they may discount it much more heavily than the 2015. Which may neutralize or even surpass the difference in resale value over the course of 3 years.
So, let's say the dealer discounts the 2015 Camry to $22,500. It still maintains the resale value of $18,00, but this would lower the payment to $125/mo. But what if they sold the 2014 Camry for $21,000 for a difference of $3100, divided over 36 months. Now the payment on the 2014 is $86/mo.
Of course, different cars in various price brackets can have much larger deviations in resale value from one model year to the next. This is especially true of the the new car has undergone a significant upgrade. Therefore, when shopping for a lease deal, have the dealership run the numbers on both the incoming model year and the outgoing to see where the best value is.
If you have a question, a tip, or something you would like to to share about car-buying, drop me a line at AutomatchConsulting@gmail.com and be sure to include your Kinja handle.