The “Stupid” Lease

In early 2008, Audi had a Q7 lease running for a while which all Audi dealer finance departments called it a totally “stupid” lease ever from Audi. Well, why was it stupid? It was stupid because it made no sense in business point of view for the dealers, but it’s great for the consumers. It actually generated sales from people who didn’t really need an SUV like us at the time went out to get one just because the deal was too good to pass up.

So, what’s a lease? To us, a lease is like buying a car in 2 parts, half or 1/3 of it now and the rest later if we really like to keep the car. It’s a great finance option for supposedly “good credit” people.

Some people are very skeptical and avoid leasing cars at all cost because they don’t understand lease or they’d been ripped off before from bad leases. Some use reason that they drive too much, they will be penalized for miles over limit on the lease contract. Well, people, if you’re only paying 1/3 or 1/2 of the car, you have to consider the condition and the value of the car when you return it in case you don’t want it. Assume you drive a lot, you buy the car instead of lease it, fine and dandy, think about how much you can sell your car if it has 60K miles after 3 years and the lease only limit you to drive 30k or 36k for 3 years.

Just get a 2007 Q7 as an example for this year 2010 (3 years)

(60000 miles – private party book value) $29575 – (30000 miles – private party book value) $33375 = – $3800

penalty if 30000 over mileage = 30000 x .25 = $7500

So, if we return the car with 60k miles, we will have to pay about $3800 more than the difference of the book value. BUT, a car at 60000 miles in real life is worth far less than $3800 compared to a 30000 miles car, especially luxury high price car. We would be much better off to walk away with the penalty and let the bank worry about selling it. In Q7 case, we may be able to sell our 60k miles car for the same price as the residual because @ 30k mile lease, it only 53% of the sticker price.

Whatever it is, this is our best lease ever and not too good lease for the dealer because they make no money from the interest or anything else.

2008 sticker price

2008 Q7 Sticker Price

selling price $49399, residual $28553 and interest = $161 for 3 years ~$5/month. No security deposit ($400-$500). No acquisition fee ($495-$595).

Lease Interest

service contract for 4 years 60k miles

Lease Contract

So, we pay all the money for depreciation (principle) and a few dollars per month for interest only. After 3 years, we are guaranteed the value of $28553.75 if we want to buy. The good thing about the lease is that if we don’t like the car, we can return it, sell it for more than the residual value if we can and keep the difference. A great thing is that if we return the car, we pay $350 and never have to pay for the tax on the $28553.75. If we had bought the car, we had to pay tax for the whole amount.

Normal leases with good rate, the interest is about $150-$300 a month on a $50k car+ depreciation ~ $500-600, the payment is about $700-800 a month.

It’s kinda nice when we see the Q7s keep the value very well.

To me, this was the lease of the century.


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