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Understanding multiple security deposit leases

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Often car buyers are looking to take advantage of the benefits of leasing, and would prefer to further minimize their overall cost. One strategy in this case can be a one pay lease (See When does a one pay lease make sense?); another can be to make multiple security deposits in order to reduce the amount of interest paid over the term of the lease.

  

What are multiple security deposits?

Some manufacturers will allow clients to lower the money factor (the interest rate) on their lease by making a number of fully refundable security deposits up front. Typically each security deposit is equal to one month's payment (rounded up to the nearest $50) with a total of up to seven allowed. Each security deposit made will reduce the money factor by a predetermined amount and thus increase the overall savings over the term of the lease. 

 

How are multiple security deposits different from drive-off fees?

Drive-off fees typically include a down payment (known as a cap reduction cost) as well miscellaneous fees that are due at signing. These are part of the negotiated cost of the vehicle and are not refundable at the end of the lease.

Multiple security deposits on the other hand are completely refundable. They are essentially loans to the bank in exchange for a lower interest rate.

 

How much money can multiple security deposits save?

Because multiple security deposits act to lower the total interest paid during the lease, the amount of money they save will depend on the price of the vehicle. We'll look at typical savings on a BMW 3 Series and 7 Series to illustrate how they work.

Our sample 3 Series is a 2016 BMW 328i with an MSRP of $43,845. We assume a 3 year/12,000 mile lease that is returned in very good condition at the end of the lease.

  Without security deposits 3 security deposits 7 security deposits
Money factor 0.00135 0.00114 0.00086
Drive-off $2,500 $2,500 $2,500
Security deposit(s) $0 $1,500 $3,500
Monthly payment (inc. tax) $500 $485 $465
Lease disposition fee $350 $350 $350
Total of payments over three years $20,350 $19,825 $19,125

 

Putting down three security deposits of $500 each (for a total of $1,500) saves $525 over the course of a three year lease; seven security deposits (totaling $3,500) will save $1,225 compared to the same lease with no security deposits.

 

Our sample 7 Series is a 2016 BMW 750i with an MSRP of $105,995. We assume a 3 year/12,000 mile lease that is returned in very good condition at the end of the lease.

  Without security deposits 3 security deposits 7 security deposits
Money factor 0.00135 0.00114 0.00086
Drive-off $2,500 $2,500 $2,500
Security deposit(s) $0 $4,350 $10,150
Monthly payment (inc. tax) $1,435 $1,395 $1,350
Lease disposition fee $350 $350 $350
Total of payments over three years $53,075 $51,675 $50,100

 

Putting down three security deposits of $1,450 each (for a total of $4,350) saves $1,400 over the course of a three year lease; seven security deposits (totaling $10,150) will save $2,975 compared to the same lease with no security deposits.

 

Are multiple security deposits a good choice?

Multiple security deposits can yield significant savings, especially on higher MSRP vehicles. Your Cartelligent agent can talk you through the pros and cons to help you make an educated decision.

 

No matter how you choose to pay for your new car, Cartelligent can help you get a great deal on exactly what you want. Call our team of car-buying experts at 888-427-4270 or get started today.