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Multiple security deposits (MSDs) on a lease is a sum of money that the lessee pays to the lessor at the beginning of the lease term as a form of collateral. The purpose of the security deposit is to protect the lessor against potential damages to the vehicle or unpaid lease payments at the end of the lease term.
In return some captive lenders, a wholly-owned subsidiary of an automaker or retailer that provides loans, leases, and other financial services to the customers of those companies, such as BMW Financial Services (BMWFS) or Nissan Motor Acceptance Company (NMAC) in offer customers the option to lower their monthly payment by making multiple security deposits.
The total amount of the multiple security deposits can vary depending on the captive lender and the vehicle being leased. It may be a fixed dollar amount, such as $1,000, or it may be a percentage of the total cost of the vehicle, such as 10%. Most commonly it is equal to one base monthly lease payment, rounded to a higher increment of $50 or $100.
At times a captive lender may require a minimum number refundable security deposits are required to qualify for the money factor reduction.
For each security deposit a money factor reduction of (for example .00004) will be given for each security deposit, up to a maximum number of refundable security deposits.
Most lenders apply a floor to the the money factor after the reduction such as .00001.
Below is an example of how Multiple Security Deposits as defined per NMAC, the captive lender to Nissan as of January 2023.
Applicable NMAC Rules:
Minimum 2 Security Deposits
A money factor reduction of .00004 will be given for each security deposit, up to a max number of five (5) refundable security deposits.
The money factor after the reduction must be equal to or greater than .00001.
The amount of one security deposit is: Calculated on the base payment using the current NMAC money factor with no reduction. Equal to one monthly base payment rounded to the next higher $50.00 increment.
The money factor after the reduction must be equal to or greater than .00001.
NMAC Lease | Min | | | Max |
# of Security Deposits Purchased by Customer: | 2 | 3 | 4 | 5 |
Customer Gets MF Reduction x this #: | 2 | 3 | 4 | 5 |
Reduction at 4 MF/Deposit: | -8MF | -12MF | -16MF | -20MF |
Example: 2023 Nissan Altima 2.5 SV AWD 36/10 Lease Monthly Payment
$325.xx Payment with Customer Electing to Provide Taxes and Fees Upfront
Pre MSD Buy Rate Money Factor of .00320 or 7.68%
Customer elects for 5 MSDs, Total Reduction of .00020 or .48%
Total MSDs - 5 Deposits x $350 = $1750
Post Max MSD Money Factor (Apply 5 MSDs) of .00300 or 7.2%
Post MSD Lease Payment: $315.xx
Customer Saves $360 during course of the lease via their election to provide $1750 of refundable monies in the form of security deposits.
The security deposits are usually held by the lessor until the end of the lease term and may be refunded to the lessee if the vehicle is returned in good condition and all lease payments have been made.
It's important to keep in mind that security deposit may not be refundable if the vehicle is returned with excessive wear and tear or if there are any unpaid charges or fees. It's also important to read the lease agreement carefully and understand the terms and conditions for the security deposit before signing a lease. It's also important to note that security deposit is not the same as the down payment. A down payment is a sum of money that is used to reduce the amount of the lease payments and can also be used to reduce the amount of the security deposit. Below are some examples of other captive lenders whom permit MSD participation and the applicable rate reductions permitted
Manufacturer | Max MSDs | Reduction Per MSD | Total |
Audi | 10 | .00005 | .00045 |
BMW | 7 | .00006 | .00042 |
Lexus | 9 | .00008 | .00072 |
Toyota | 9 | .00008 | .00072 |
Volvo | 10 | .00005 | .00050 |
Notes: Audi, first MSDs does not provide a reduction. For leases either originated by a New York dealer or executed for a lessee or co-lessee who is a New York resident, some lenders such as NMAC or Lexus will not buy the lease if the total of all security deposits exceeds $749.00.
It is important to note that electing for multiple security deposits may not drastically lower the lease payment, it will depend on the terms of the lease agreement and other factors. It's also important to read the lease agreement carefully and understand the terms and conditions of the security deposit before signing a lease. It's also recommended to consult with a financial advisor or an expert in the field before making such a big decision.
In conclusion, a security deposit can help lower your car lease payment and provide for a good return on investment. However, it's important to consider all the terms and conditions of the lease agreement before making a decision.
Make sure to use our free to use lease and finance calculator at AutoCompanion.com to structure your deal and verify if MSDs make sense with your next lease deal.