Who actually owns the car at the end of the lease? I understand how lease cash can reduce the dollar amount of depreciation, but how do they inflate the residual value and who eats this loss at the end? I thought the RV was set.I don't think the explanation is quite correct. While there are some market/financing influence, the money factor is chosen more for strategic reasons in regards to the best way to get people to lease. Many times the RV is inflated as a way to subsidize the lease or the MF is extremely low, this is done to get people a lower payment or just appear that they are with such a low MF. Many times lease cash is also used as an enticement. In general there is no correlation between the movement of RV and the movement of MF.
There is no principal when it comes to leasing. You pay a rent charge based on the depreciation amount and residual amount. If you would want to purchase the car at the end of the lease then you would pay the residual amount.
I thought I had some idea of how leasing worked, but will have to research it further.