QUESTION Optimizing total spend on Lucid Gravity lease

[tokyotech]

My Lucid Gravity Grand Touring is already in production and I'm applying for lease financing. I'd like some opinions on how to adjust the parameters to reduce the total spend over the entirety of my lease.

Constants​

These are the properties that I consider unadjustable due to personal reasons:

• Car configuration
  • White paint
  • Dream drive Pro 2
  • Interior comfort package
  • 7 seater
  • Everything else is base.
  • Production started in October, so hopefully I get delivery before end of year and get the $7,500 credit.
• Credit Score: 800+ because that's what my score is.
• Annual mileage: 7,500 miles because all the other cars I've ever owned stayed right under 7,500 and I have a backup car to drive in case I get too close.
• Term: 36 months. I only plan to be in the country for another 3 years.

Downpayment​

Here are two comparisons of two common downpayment amounts.

$0 downpayment​

• Due at delivery: $2,472.10
• Monthly payment: $1,569.97
• Total spend for term: 2,472.10 + 36 * 1,569.97 = $58,991.02

$8,000 downpayment​

• Due at delivery: $10,962.93 (strangely more than $8,000 greater than the $0 downpayment's due at delivery price)
• Monthly payment: $1,310.80
• Total spend for term: 10,962.93 + 36 * 1,310.80 = $58,151.73
• ($839.29 less than the $0 downpayment.

Contrary to what Google and some forum posters say, the downpayment does affect the interest rate. The downpayment is not evenly subtracted from all the monthly payments. The $8,000 higher downpayment option would save $839.29 over the lifetime of the term. This equates to a 3.39% APY. If that $8,000 were not used for downpayment, but rather for investment, it could yield 3.79% APY in a US Treasury for 9+% expected annual growth in an S&P500 index fund. So it's probably better to put down $0 downpayment and invest it elsewhere.

I also heard that the downpayment is not refunded in the case of a total loss or theft of vehicle. So that's another disadvantage to putting down non-zero downpayment. The customer takes all the risk.

Verdict: $0 downpayment is the best for loss risk and investment opportunity

Reduce Due at Delivery​

Another option is to spread the upfront costs over the monthly payments:

Lucid offers capitalization options to customers to reduce upfront costs.

Customers from all states can capitalize fees to roll gross fees (registration and additional fees) into monthly payments.

Customer from the listed states have the option to capitalize both fees and taxes at their preference (MN).

I'm in California, so I cannot spread the taxes as well. Apparently, the spreading of costs is not free, but includes some interest. If I calculate the spend over the lease term, spreading costs has a higher total cost:

Do spread upfront costs​

• Downpayment: $8000
• Monthly payment: $1,349.65
• Due at delivery: $9,802.78
• Total spend for term: $58,390.18

Don't spread upfront costs​

• Downpayment: $8000
• Monthly payment: $1,310.80
• Due at delivery: $10,962.93
• Total spend for term: $58,151.73

The difference at delivery time is $1,160.15. The difference in total spend over the term is $238.45. That equates to an APY of 6.4%.

Verdict: difference is so small that it doesn't really matter how penny pinching you want to get to reinvest the saved principal in stock market.

 

[DeaneG]

Careful, I would not expect 9% rate of return on the S&P 500 for the next year. CAPE valuations are the second highest they have ever been, second only to the Y2K bubble.

 

[borski]

Careful, I would not expect 9% rate of return on the S&P 500 for the next year. CAPE valuations are the second highest they have ever been, second only to the Y2K bubble.

Y2.025K?

 

[socktucker]

Y2.025K?

IYKYK

 

[mister_caroline]

• Due at delivery: $10,962.93 (strangely more than $8,000 greater than the $0 downpayment's due at delivery price)

The "due at delivery" increases more than just the down payment because in CA (like many other states), sales tax is levied on the lease payment. Putting 8k down, you are essentially doing a payment, so an accompanying sales tax becomes due.

 

[illopp00]

The "due at delivery" increases more than just the down payment because in CA (like many other states), sales tax is levied on the lease payment. Putting 8k down, you are essentially doing a payment, so an accompanying sales tax becomes due.

Right and every time I mess with the calculator; there is some change on the sales tax fee due based on base price after you pay down things. Either way, I decided I would put a lot of cash in an ETF that pays a monthly dividend blended around 6.5% that cancels half the monthly lease payment. Unfortunately, rate cuts have done nothing for financing rates in the leases either.

 

[mister_caroline]

Unfortunately, rate cuts have done nothing for financing rates in the leases either.

It looks like the money factor fell from 0.00227 (5.45%) in October (per other users on this forum) to 0.00184 (4.42%) in November (per my sales associate). Wish it fell further like anyone else but I'll take it. I've been playing with the calculator too but I am holding off on submitting the application until my car has passed PDI. No need to give BofA my info for free without getting something in return.

 

[illopp00]

I play with the calculator, I could use some help in understanding how the sales taxes and fees are added or affect the lease monthly? I haven't been able to backcalculate to get the similar numbers.

 

[Zelus]

I was just playing with the calculator ahead of getting mine next week and analyzing the value of increased deposit amounts because I think that's really what matters - here's what I came up with.

Base deal (36 months, 15k mikes, 800+ credit):

Price (Taxable subtotal)	$121,355.50
Order Deposit	($1,000.00)
Est. registration & additional fees	$106.85
Acquisition Fee	$995.00
Rebates And Non-Cash	($7,500.00)
CCR Taxes	$1,086.79
Total	$115,044.14

​

Savings analysis for increasing the deposit:

Bottom line: You're saving about 11.5% on that additional money you put down.

 

[charleyscott]

I was just playing with the calculator ahead of getting mine next week and analyzing the value of increased deposit amounts because I think that's really what matters - here's what I came up with.

Did you notice that the lease rates seem to have decreased from November to December? I accepted my offer in November because the SA told me I had to commit to a November delivery. But then the service center wasn't actually ready to deliver the vehicle! Now they want me to take delivery next week, instead. If lease rates went down in the meantime, I want to get the benefit of the decrease....

 

[Banpr]

Did you notice that the lease rates seem to have decreased from November to December? I accepted my offer in November because the SA told me I had to commit to a November delivery. But then the service center wasn't actually ready to deliver the vehicle! Now they want me to take delivery next week, instead. If lease rates went down in the meantime, I want to get the benefit of the decrease....

Call your SA and he will ask the finance guys to open the portal for you to reapply for lease. I did it yesterday and saved few hundred per month on lease payment...

 

[mister_caroline]

Bottom line: You're saving about 11.5% on that additional money you put down.

It's also worth thinking about the opportunity cost of putting more money down (e.g. locking in $115 return on $1000 over 3 years vs. investing $1000 over 3 years), along with assuming the risk of not being able to get your money back in a total loss event. Barring cash flow goals, the general advice is to aim for $0 down.

 

[Zelus]

It seemed like it at a glance,

Did you notice that the lease rates seem to have decreased from November to December? I accepted my offer in November because the SA told me I had to commit to a November delivery. But then the service center wasn't actually ready to deliver the vehicle! Now they want me to take delivery next week, instead. If lease rates went down in the meantime, I want to get the benefit of the decrease....

It seemed like that at a glance, but I hadn't saved any screenshots from when I previously looked.

 

[Zelus]

It's also worth thinking about the opportunity cost of putting more money down (e.g. locking in $115 return on $1000 over 3 years vs. investing $1000 over 3 years), along with assuming the risk of not being able to get your money back in a total loss event. Barring cash flow goals, the general advice is to aim for $0 down.

Can you explain this a little further? Are you saying the risk of a total loss prevails, there's a better chance of beating 11.5%, or something else? I do think 10k invested for 3 years is probably going to beat 11.5%.

 

[mister_caroline]

Basically you are locking in a 3.7% APR return on your down payment for a 3 year term. As you've stated, you can probably do better with the investment options available to you. That alone is enough for me personally to forgo putting any money down on a lease, unless monthly cashflow is a priority.

The thing I wanted to highlight is that any money you put down on a lease is used up instantly (in essence, to buy a lower monthly payment over the lease period) since you don't own the car. Putting money down on a lease is a bit distinct from a true down payment with traditional loans in that with leasing, your money goes towards prepaying rent.

If for example, you do a one-pay lease where you prepay the entirety of a 3 year lease, and you experience a total loss at any time before 3 years is up, your insurance company (and GAP) will make the owner (in this case, the leasing company) whole. In this scenario, no party owes you a car or compensation for what would have been the remainder of the lease period, even with insurance and GAP. The lease contract simply gets terminated. It could be a non-issue if you are in month 35, or a big headache if you are in month 2.

tl;dr Putting money down on a lease exposes you to financial loss in a total loss event scenario - with $0 down, you can't lose money you didn't put down. You may find that your expectations of a total loss event might be small, and while I trust my driving habits and driving record, I don't trust others with whom I share the road, not to mention how easily cars can get written off these days.

 

[TahoeMichael]

It seemed like it at a glance,


It seemed like that at a glance, but I hadn't saved any screenshots from when I previously looked.

I'm going through a lease application right now. The effective interest rate for the 36 month lease term dropped a lot for me between the November quote and what is being offered right now. In my quote, the 18 and 24 month lease got very slightly more expensive, and the 48 month got very slightly less expensive. No idea why the rates changed that way, but for me it makes 36 months the clear winner for a December lease.

 

[Zelus]

I applied a few days ago for my delivery that was supposed to be today but pushed to Sunday. With the rate cut that happened yesterday, does anyone know if the money factor is now down? I went to edit my application to try to see, but it's telling me that allows them another credit pull.

 

[mister_caroline]

does anyone know if the money factor is now down?

Your sales associate can give you this information. I would not expect a change to the money factor, if it occurs, to be immediate, as a rate change may take a couple of days or weeks to propagate down to consumer finance. Leasing programs generally follow the calendar month.