1. Financial Services Management Training
for
Professional Sales Representatives
Seeking to
Further Their Careers and Enter Management

2. Introduction
Benefits of Leasing
Who is a Good Candidate for Leasing?
Terminology
Residual Value
What factors determine this value?
How is it calculated?
Assessment

3. There are many benefits to leasing, and one must comprehend these benefits
in order to see value in this financing option
So who is a good candidate for leasing? Which consumers benefit from
leasing?
In order to calculate a lease, it is important to first understand the
fundamental terminology and how the terms are derived
Calculating a lease is a simple combination of basic mathematical steps
OBJECTIVES:
1. Understand the benefits of leasing
2. Determine who is a good candidate for leasing
3. Learn basic leasing terminology
4. Calculate residual values
INTRODUCTION

4. BENEFITS OF LEASING
Leasing allows consumers to often times have a lower monthly
payment than traditional financing. This means that consumers can
drive “more car” for the money.
Leasing provides flexibility at the end of the term. Consumers can
purchase the car, trade the vehicle if they have equity, turn the
vehicle back in, or certify the car and purchase it back with a
Certified Pre-Owned Warranty.
The most influential reason a consumer should choose to lease a
vehicle is the transfer of liability. The consumer is not responsible
for the value of the vehicle for the lease term. If the vehicle is worth
less than the residual value, the bank is liable for the loss.

5. Everyone!
1. High-mileage drivers: High-mileage drivers are more likely to experience accidents or damages that are
out of their control. Although the monthly payment is similar, if not higher, than traditional financing, a
high-mileage lessor is not responsible for loss of value due to accident or collision damages.
2. Low-mileage drivers: Low-mileage drivers who lease do not have to worry about taking a large loss on
their new car because they are leasing during the period when a car depreciates the most: typically the
first three years. They only pay for what they use! If the car is worth less than the residual value at the
end of the term, the bank is responsible.
3. Business Owners: Although we are not tax advisors, many businesses lease for the tax benefits. When
discussing leasing with business owners, encourage them to consult their tax accountants to see if
leasing would be in their best interest. Also, business leasing helps to establish credit in the business
name.
4. Homemakers: Newer cars come equipped with more standard safety features. By providing lower
payments, homemakers can afford greater safety in a new car, while riding around town in style.
5. New graduates: New college graduates often have very little established credit history, coupled with
entry-level paying jobs. Leasing affords them a lower payment with the chance to establish credit
history, and many banks who provide leasing offer new graduate leasing programs designed to get
graduates on their feet and in a new vehicle.
WHO IS A GOOD CANDIDATE FOR LEASING?

6. 1. Selling Price: The price a client pays for a vehicle, including any additional options
or discounts.
2. Processing Fee: A fee the dealership charges to process the paperwork.
3. Acquisition Fee: The fee the lender collects for the lease, which offsets the cost of
losses at the end of the term, as well as provides Guaranteed Asset Protection
(GAP) should the vehicle be deemed a total loss due to fire, flood, theft, or
accident. GAP ensures the customer will not have to pay for any negative equity
due to a loss.
4. Sales Tax: The tax collected by the state where the consumer resides, often called
a use tax.
5. Residual Value: A value pre-determined by the lender for what the vehicle will be
worth at the end of the lease term. This is often given as a percentage of the
Manufacturer’s Suggested Retail Price (MSRP).
TERMINOLOGY

7. TERMINOLOGY (Continued)
6. Term: The length of the lease contract.
7. Down Payment: Also known as capitalized cost reduction, this is true money
down, and is in addition to the customer’s first month’s payment (due at signing).
8. Gross Capitalized Cost: Sum of selling price, sales tax, DMV fees, processing fee,
and acquisition fee.
9. Net Capitalized Cost: Difference between the Gross Capitalized Cost and the
Down Payment. The difference between the Residual Value and the Net
Capitalized Cost is what the consumer pays in depreciation for the time they lease
the vehicle.
10.Money Factor: A numerical value used to represent the “rent charge” on the
lease. While in simple terms, it can be equated to something like interest, it is a
number that is a multiplier of the Net Capitalized Cost and the Residual Value to
determine the fee the lender charges each month for the rental of the vehicle.

8. MSRP
•The MSRP is the basis of
the Residual Value.
Usually, the Residual
Value is a percentage of
the MSRP.
Residual
Percent
Table
•A Residual Percent Table
is used to locate the
Residual Value Percent.
The table has the model
and the term.
Term
•The longer the lease
contract term, the lower
the residual value. As the
vehicle value decreases
over time, it is expected
that the Residual Value
will also decrease.
Mileage
•The Residual Value
decreases as the annual
mileage decreases, as
one would expect with an
increase in mileage over
time.
RESIDUAL VALUE:
What factors determine this value?
Residual
Value

9. RESIDUAL VALUE: How is it calculated?
In order to calculate the Residual Value, all that is needed is the
Residual Value Table, MSRP of the vehicle, Term of the contract, and
the Mileage.
12 Months 24 Months 30 Months 36 Months 42 Months
Model A 81% 72% 68% 63% 55%
Model B 76% 67% 62% 58% 50%
Residual Value Table
The table above shows what percent of the vehicle MSRP the lending source
believes the vehicle will be worth at the end of the preset terms listed at
the top of the table (in months), and assumes the customer will drive
15,000 miles per year.

10. RESIDUAL VALUE: How is it calculated?
12 Months 24 Months 30 Months 36 Months 42 Months
Model A 81% 72% 68% 63% 55%
Model B 76% 67% 62% 58% 50%
Residual Value Table
To adjust for mileage:
• If the customer drives 12,000 miles per year, add 2% to the percentage listed
• If the customer drives 10,000 miles per year, add 3% to the percentage listed
• If the customer drives more than 15,000 miles per year, the residual value
calculated must be REDUCED by $0.15/mile for every mile over 15,000

11. RESIDUAL VALUE: Example
A customer is leasing a Model A vehicle with an MSRP of $50,000 for 30 months.
What is the residual if she plans to drive 10,000 per year? 12,000 per year? 15,000 per
year? 20,000 per year?
SOLUTION: The residual table says for Model A at 30 months that the residual percent
base is 68%.
For 10,000 miles/year, add 3% to the residual percent base, which is 71%.
71% X $50,000 = $35,500
For 12,000 miles/year, add 2% to the residual percent base, which is 70%.
70% X $50,000 = $35,000
For 15,000 miles/year, simply use the residual percent base, which is 68%.
68% X $50,000 = $34,000

12. RESIDUAL VALUE: Example
SOLUTION (Continued): The residual table says for Model A at 30 months that the
residual percent base is 68%.
For 20,000 miles/year, use the residual percent base, which is 68%,
for the first 15,000 miles.
68% X $50,000 = $34,000
Then calculate the excess mileage charge. Each year, the customer will drive 5,000
more miles, and the term is 30 months, or 2.5 years.
(20,000-15,000) = 5,000
5,000 X 2.5 years = 12,500 extra miles
Excess mileage charge= 12,500 miles X $0.15/mile = $1,875
This must be subtracted from the residual value used for 15,000 miles
$34,000 - $1,875 = $32,125

13. ASSESSMENT
Multiple Choice Questions
1. A cost the dealership charges to process the paperwork
A. Acquisition Fee
B. Sales Tax
C. Selling Price
D. Processing Fee
2. Difference between the Gross Capitalized Cost and the Down Payment
A. Residual Value
B. Sales Tax
C. Gross Capitalized Cost
D. Net Capitalized Cost
3. A numeric value used to represent a "rent charge" on the lease, and is a multiplier of
Gross Capitalized Cost and Residual Value to determine the fee the lender charges
each month for the rental of the vehicle
A. Sales Tax
B. Term
C. Money Factor
D. Down Payment

14. ASSESSMENT
True/False Questions
1. Processing Fee → A charge the lender collects for the lease, which offsets the cost
of losses at the end of term, as well as provides Guaranteed Asset Protection (GAP)
True False
2. Down Payment → Also known as Capitalized Cost Reduction, or true money down,
and is in addition to the customer's first monthly payment
True False
3. Residual Value → A dollar amount predetermined by the lender for what the
vehicle will be worth at the end of the term
True False