Drive Time


Mailbag: Understanding Car Leasing Interest

Jessica L. Anderson

Drive Time Columnist, Jessica Anderson answers your questions on deceased lesees, sales tax deductions and a Honda diesel.



Q: I’ve always wanted to know how to calculate interest on a lease. Do you multiply the money factor by the residual value or the capitalized cost, or what? B.C. via email

A: To get an approximation of the annual interest rate on a lease, multiply the money factor by 2,400.For example, a money factor of 0.00297 is approximately equal to 7.13% APR.

Here's a site that will explain in detail a lot more about leasing—especially how the money factor works.

Q: What happens to an auto lease when the lessee passes away? My brother-in-law leased a BMW in February and he passed away suddenly in April. He was the only person named on the lease agreement, but someone in the finance division at BMW told my wife and me that the lease and car were now our responsibility. He said we could either continue to make payments on the lease, sell the car and pay off the lease with the proceeds, or find someone else to assume the lease. I would like to know your thoughts. C. J. San Jose, Cal.

A: I consulted Tarry Shebesta, president of LeaseCompare.com, to find out. Shebesta says that, in most cases it would become the responsibility of the estate and whoever controls it or is the beneficiary. And the specifics of how to deal with it could vary by lender I'd urge you to get legal advice if you're not the beneficiary of the estate (or even if you are—to make sure you indeed should be responsible). Also, there are ways to get some money out of the lease—check out LeaseTrader.com for more details on how to get someone to assume the lease.

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Q: Any special criteria a new car must meet to qualify for the sales tax deduction mentioned in your article in July issue of Kiplinger’s Personal Finance? I think many people are doing the math and deciding to keep their cars, but a significant bonus on GM Card earnings plus rebates encouraged us to trade even though our vehicle was good for lots more miles. E.D. Hutchinson, Kansas

A: Thanks for writing in. No special criteria for the vehicle is needed, but the deduction only covers taxes and fees on up to $49,500 of the purchase price. Also, the deduction is reduced if your modified adjusted gross income is between $125,000 and $135,000 as a single-filer, or between $250,000 and $260,000 for joint filers. Taxpayers with higher incomes do not qualify. Here's a link to the IRS site that explains more.

Q: I read that Acura switched the TSX from a four-cylinder engine to a V-6 and dropped plans for 2.2-liter diesel. When will Honda bring a diesel to the U.S.? I’ve seen blogs saying in 2009. Is this true? John Vernon, via e-mail

A: Honda has no imminent plans to bring a diesel stateside, according to a Honda spokesman. Honda dropped plans (along with Chrysler, Ford, GM, Nissan and Toyota) for 2010-model diesels, including an anticipated TSX diesel. TSX—the entry-luxury sedan from Honda’s Acura division—is getting a V6 engine this year instead, but the base engine will still be an inline four-cylinder.

Carmakers are putting diesel plans on hold because of the high cost to build a 50-state-compliant clean diesel, according to Automotive News, an industry publication. The volatility of diesel fuel prices and belt-tightening in the automotive industry following the lowest sales in nearly 25 year are additional factors.




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