Most luxury vehicle manufacturers have a Multiple Security Deposit (M.S.D.) program. But not all manufacturers do.
MSD programs can reduce our interest rate by more than half. This is why so many people ask me about it…
I NEVER recommend putting money down on a new (or used) car lease.
A car almost never appreciates. So we want to rent it. Instead, we should invest in assets that appreciate (like a business or index funds).
Even worse, a down payment is not protected if our car is either stolen a considered a total loss. Because any prepayment gets forfeited in a total loss. So even if we have GAP insurance, the leasing company raids our down payment first, then gets the balance from the insurance company.
The pros of MSDs
For some, it might make sense to invest cash into a Multiple Security Deposit.
When we do, we want the F&I manager to tag it as a security deposit (not as a down payment).
A growing number of captive car manufacture leasing companies allow us to trade our cash for a reduction of their money factor.
Instead of putting money down on our lease to lower our payment, we give the leasing company a lump sum of cash as a security deposit instead…
When we take the quoted, total monthly payment (and rounded up to the nearest $50), the leasing company rewards us with a lower interest rate.
For example, if the payment works out to $494, the nearest $50 brings this to $500. And for each $500 deposit we make, the money factor over the entire lease decreases. Each leasing company is different, but most allow up to 8 to 10 Multiple Security Deposits (aka. MSDs).
How much can we save with Multiple Security Deposits?
Investing in Multiple Security Deposits can give us a substantial discount of the Money Factor (i.e. the rental interest charge).
For example, a $5,000 MSD could bring the monthly lease payment down $80 to $100 every month.
Some calculations show “investing” in MSDs is one of the best investments ever – yielding more than 30%… sometimes even more than 40% return on our money year over year.
And remember – we are guaranteed to get the entire MSD (in this example $5,000) returned to us at the end of the lease when we sell back the car to the dealer (or turn our leased car in)…
MSDs are always refunded to us after the lease ends. The exception is when we miss payments or turn in our lease-ending car with damage, repairs and/or over mileage charges.
By the way, New York state has a lot of crazy laws. And one prevents New York state car dealers from offering MSDs…
And one note of caution: if we swap a lease, the person you swap with gets your MSDs.
“If the vehicle I’m currently leasing is involved in an accident and is declared by the insurance company as a total loss, will I also be losing the MSD I’ve put up in the beginning of the lease?”
Any Multiple Security Deposit we put up is shielded from liabilities. MSDs are returned to us after the car lease ends.
“If I decided to end the lease or sell the leased vehicle before the end of the agreed term, will I not be losing the deposits?”
Absolutely not. We do not lose any of our MSDs…
If the lease is bought out early, the leasing company returns our MSDs “once everything has been processed properly.”
“But I don’t have money to put 9 times the payment as the MSD? Can I just put down 5?”
Yes we can. We can put down as little as one MSD.
“This sounds too good to be true. Is the leasing company leveraging my money and flip it and invest it?”
MSDs are just like whole life insurance policies. The leasing company uses our money as a short-term loan. And our interest reward is a reduction in the Money Factor (i.e. the leasing finance charge).
“Do dealerships like when we submit MSDs?”
No, dealerships do not like MSDs.
You would think car dealers would suggest we put our cash into MSDs to save us money. It is an easy way to help reduce the cost of our newly leased car. But they plea ignorance about MSDs. (I explain the real reason below).
“Can I pay MSDs with a credit card?”
Each dealership is different.
If you can pay by credit card (and if you have the cash on hand and would like to use the credit card to get points), then you might wanna go for it. This is a double win (lower interest rate and tons of credit card points). Then pay off the balance as soon as the first statement comes in.
“Okay, I am convinced. How do I sign up to put up MSDs?”
We want to let the dealership know about investing in MSDs once we come close to a final price…
Because we might not need MSDs after all…
When you use my system to get under 1% monthly of MSRP, we already get a super low Money Factor rate. So adding MSDs is often not needed, because the Money Factor is virtually zero…
On the flip side, if we are looking to lease a popular car (and our monthly leasing rate is closer to 1.3% of MSRP), MSDs might be worth the cash outlay. Also, MSDs are a great way to force the dealership of a popular vehicle into a mandatory discount.
Also, if we have sub-par credit, MSDs almost always benefit us. Because dealerships usually inflate the Money Factor for those with sub-par credit.
“If my monthly payment with tax is $531, should I expect 1 MSD to equal $500 or $550?”
MSDs are almost always rounded UP to the nearest $50. (Some actually ask the dealer to increase the overall price so the rounding is less.)
While MSDs seem beneficial in so many ways, I would never invest in them.
Strangely, most people forgot about the Enron investment scandal. Enron scammed many investors out of their life’s savings – then went bust. They too offered high payouts in exchange for our cash investment.
Similarly, if a car company goes bankrupt, we are probably not going to get our MSDs returned. And a surprisingly large number of car companies in the USA have gone bust. (Remember Saab, Suzuki and Isuzu?)
Even worse, I am EXTREMELY skeptical of anyone paying out 30% to 40% return on investment over such a small time window (3 years). This SCREAMS scam to me. I think to myself, “Why would the largest companies on the planet need to borrow money at these super high interest rates? Why not just issue a bond and pay 1.1% interest per year?”
It gets worse:
I have heard more than a few stories of people having trouble getting their MSDs back.
But the worst part is this: giving a car leasing company thousands of dollars opens us up to flim flam, bogus excess-wear-and-tear charges. Because the end-of-lease adjuster can see how much security deposit is on file. Psychologically, when they see thousands of dollars on loan, they assume we can afford these turn-in charges.
(Of course, if we buy out the lease, there are no inspections – and we get all the Multiple Security Deposits back.)
But wait. There is even more bad news:
As I said above, finance managers pretend to not know much about MSDs. But the truth it is a reduction in the finance “rental charge”. And this is a reduction in the finance manager’s pay (since they are paid 100% commission).
With this all said, if you are more risk adverse than me…
And the risk of losing all your MSDs does not phase you, then loaning money to car companies might be an outstanding financial play.
If you have subpar credit scores, you might be required to give a down payment. Remember, NEVER EVER give a down payment – instead, have it tagged as a security deposit. Because we risk losing our down payment if our leased car is either stolen or considered a total loss in a crash.
Car companies in the MSD game
Here is my always-updated list of car companies that take part in MSD programs:
We do not have to rely on multiple security deposits to lower our monthly lease payments…
I created my KTL At-Home Leasing System to help my clients get into a new lease at the absolute lowest price. We do it without any downpayment (sign and drive). And in most cases, we never go into the dealership… they bring the new vehicle to our home (or office).
Click here to order my KTL system and get access in mere seconds.
UPDATE: 4/7/2017 – Word is BMW just discontinued their Multiple Security Deposit program.