Leasing companies aren't lenders, they offer rental services. When you borrow money, you get a break from the tax man (they don't charge tax on the interest paid, but you really are buying the use of the money and should be taxed on that service). When you rent stuff, no such luck.
Basically, when you rent anything, you ARE buying the finance charges. The leasing company has bought the car and is either financing it themselves or beholden to investors to give a return. They are going to cover their costs which can be seen as equivalent to finance charges, but they aren't real finance charges since no money is being borrowed by you. That's why they are careful to use the "money factor" terminology rather than interest rates. You could just as easily calculate a lease payment using an interest rate and residual%. It's not interest, but just another part of the rental charge.
As for the prepaid lease, you'll never get a straight price paid minus residual divided by the time period calculation. Even if you paid down to the residual, there is still going to be a taxable monthly rental charge which is equvalent to the "interest" due on the residual car amount - but remember it isn't interest. They get to put your money in the bank and make money on it, so they may give you a break, but not to a point that they are giving away the use of their money. Also, you are taxed on cap reduction payments, so you really aren't saving any taxes here either.
Before the current relative transparancy in the leasing market, some early companies had some brutally bad lease deals. Since people couldn't do the math to back out what eqivalent interest they were being charged, and were commonly lied to, compaines were raking in the money to the point that the market had to be cleaned up. The car market is also very complex with different options and models to calculate for. This is why a fixed common formula has been derived; with a residual percent and a money factor they can calculate the lease payment for you on the spot rather than having to call a lease company and get a personal quote. It also allows the buyer and dealer to compare deals more easily, and leads to a more competitive market. Just because they are transparent with the calculation they use to compute your payment doesn't make it any different than a typical rent. And sorry, no equvalent break on the tax like you see with borrowed money.
Look at it this way: When you go to Budget and rent a car, you get a quote for $60/day. Just because Bob, the guy behind the counter lets you know that you can calculate how they get to this value, and gives you a formula which tells you that the car cost them $10 a day, and the remaining $50 is what they charge to cover their operating cost and profit, doesn't change the fact that you are renting the car for $60. And the tax will be on the $60 rental.
The same is actually true for anything you buy. Stores purchase merchadise for less than they sell it to you for. Doesn't change the fact that you pay sales tax on the final purchase price.
Sorry for the long winded response..... I need to get out more. Perhaps my Red Jewel Enclave will help when it comes in....
