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How does auto leasing companies make money?


muscleman
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Sorry for the dumb question. I tried to google it but it is all about how leases work for consumers.

 

Can anyone please let me know how lease work financially for the leasing companies?

I know some banks finance auto leases. Let's say I signed a lease and paid $2000 upfront and I will pay $200 per month for 3 years. At lease end the residual value of the car is $20000. Then does the bank pay the entire value of the car upfront for the dealership?

 

If the used car prices decline and 3 years later the car is only worth $15000, who is responsible for that risk and how?

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https://www.occ.gov/publications/publications-by-type/comptrollers-handbook/pub-ch-lease-financing.pdf

 

Check p.54. This might be what you are looking for.

 

Edit: Probably should use this instead. Anything on "sales-type lease" should work for you.

http://www.pwc.com/us/en/cfodirect/assets/pdf/accounting-guides/pwc-lease-accounting-guide.pdf

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