This morning, I thought I found a substitute for the Magliozzi boys--a car-advice program on KNX, a local newsradio station. But within ten minutes, I heard the host give terrible advice. When his sidekick asked him if buyers should make an upfront payment on a lease in order to buy down their monthly payments, the host said no, that such an upfront payment was a waste of money, because of the absence of equity value at the end of the lease term. But the buydown can, in fact, be a very sensible thing to do, depending on the nature of the deal.
To give one example, consider this lease calculator for a Honda Accord. With a $3000 downpayment, the monthly payments for the car are $186 per month for 36 months. At zero down, the payments are $266 per month. So by investing $3000 more up front, you are reducing your payments by $80 per month. Now lets consider the implicit rate at which you are borrowing the $3000, by using the excel function RATE.
RATE(36,266-186,-3000) = .0022.
So the cost of borrowing here is 22 basis points per month, or, on an annualized, compounded, basis, 3 percent. This is not a great return on investment, so the lower down payment may make sense. But to give general advice without doing the math first is to give bad advice.