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TOV Forums > Sales Experiences > > Re: Questions regarding: lease, then buy option

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JimmyEats
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Questions regarding: lease, then buy option    (Score: 1, Normal) 05-23-2018 10:20
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When a lease price is considered really good, what does the purchase cost end up being after 3 years?

If a car, like a luxury car, loses it's resale value, does a buyer end up getting a low used car price on the car they've owned and known?

Example: Would a TSX base model every be $199/mo and the purchase price after three years be $20k?

RSX
Profile for RSX
Re: Questions regarding: lease, then buy option    (Score: 1, Normal) 05-23-2018 10:58
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JimmyEats wrote:
When a lease price is considered really good, what does the purchase cost end up being after 3 years?

If a car, like a luxury car, loses it's resale value, does a buyer end up getting a low used car price on the car they've owned and known?

Example: Would a TSX base model every be $199/mo and the purchase price after three years be $20k?



There's so many scenario's in the answers to these questions. First, it is up to the dealer and/or manufacturer to determine the buyout price at the end of the lease contract.

Not often do people buy out these cars at the end of the contract because people that lease often do so only because they can get a low payment and have a new car every two to four years. These cars end up going to auction where dealers pay much less for them than they're worth - obviously so they can be sold for profit on their lots. Then, there's the businesses that use lease payments for tax benefits. Again, these cars don't get bought out.

If you're getting a low lease payment and plan to purchase the car at the end of your lease, you might want to check that the buyout amount is a reasonable amount to pay for that car, knowing the age and miles you'll put on it. The good news is you're buying a car you've owned and know exactly the condition it is in - that is probably the biggest advantage you have. You can ask the dealer what depreciation rate they are using on the car and compare it with others of the make or competitors of that model.

Good luck.

JeffX
Profile for JeffX
Re: Questions regarding: lease, then buy option    (Score: 1, Normal) 05-23-2018 13:19
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JimmyEats wrote:
When a lease price is considered really good, what does the purchase cost end up being after 3 years?

If a car, like a luxury car, loses it's resale value, does a buyer end up getting a low used car price on the car they've owned and known?

Example: Would a TSX base model every be $199/mo and the purchase price after three years be $20k?



Leasing is not too complicated but it's somewhat easy to obfuscate the numbers.

When you see really good lease deals with low monthly rates and low initial costs, there are usually one or more factors in play

1) Manufacturer is putting cash into the lease, "buying it down" so the amount financed is less. This is the "capital cost reduction" part.
2) Manufacturer is basically highly encouraging the dealer eat part of his own profit, and "sell" you the car for less than MSRP
3) Unrealistic residual factor - the residuals are set artificially high so at the end of the lease the buyout tends to be much higher than wholesale and sometimes even the retail value of the vehicle. The amount financed (rented) is based upon the difference between the capitalized cost of hte lease and the depreciated value of the vehicle at the end of the lease. The narrower this gap is, the lower the monthly rent payments. A lot of car companies get in deep shit kicking the can down the road this way, and this is how they end up with 10s of thousands of cars 2-3 years later which are worth less than what the manufacturer projected. So they get to recognize the revenue up front, and take a huge hit 2-3 years down the road. They're hoping that something comes along to save the day.
4) Money factor. This is a fancy way of hiding the interest rate. A lower money factor means less interest paid monthly.

So, it can be 1 of these 4 things or any combination of these 4 things. For the lowest lease you'll see it's usually a combination of at least 2 or 3 of them.

Mikeydred
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Re: Questions regarding: lease, then buy option    (Score: 1, Normal) 05-23-2018 14:05
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This is great information, I was thinking of posting similar as I have never lease but decided that will be next option. Will manufacturers actually tell buyers the projected value or do they usually inflate to hold profit? Also, after the lease is up is the purchase price negotiable based on market value or is it predetemined by dealers?

JeffX
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Re: Questions regarding: lease, then buy option    (Score: 1, Normal) 05-23-2018 14:20
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Mikeydred wrote:
This is great information, I was thinking of posting similar as I have never lease but decided that will be next option. Will manufacturers actually tell buyers the projected value or do they usually inflate to hold profit? Also, after the lease is up is the purchase price negotiable based on market value or is it predetemined by dealers?



it will all be in the contract that you sign when you purchase the vehicle. Usually the terms aren't very negotiable if it's one of those nationally advertised aggressive lease deals.

Before agreeing to any lease terms, ask for the following information at minimum:
1) Allowed miles and cost per mile for excess mileage
2) Capitalized Cost (acquisition cost of the vehicle, less any factory/dealer contributions, less your contributions, plus taxes/fees)
3) Residual cost (your contractual cost to purchase at the end)
4) Ask if there are any end of lease fees or any fees if you decide to purchase
5) money factor
6) Is there a security deposit? (this is not applied to CCR - it's money you put in up front which is generally returned at the end of the lease).

note that if you sign on to a lease and then need to break it for whatever reason before the end of the term, you normally have to pay the sum of all remaining payments (less interest, in some cases) + the full residual cost and any taxes that may be incurred, and possibly a lease termination fee.

This is just off the top of my head. If I think of anything else, I'll come back.

Mikeydred
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Re: Questions regarding: lease, then buy option    (Score: 1, Normal) 05-23-2018 20:50
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JeffX wrote:
Mikeydred wrote:
This is great information, I was thinking of posting similar as I have never lease but decided that will be next option. Will manufacturers actually tell buyers the projected value or do they usually inflate to hold profit? Also, after the lease is up is the purchase price negotiable based on market value or is it predetemined by dealers?



it will all be in the contract that you sign when you purchase the vehicle. Usually the terms aren't very negotiable if it's one of those nationally advertised aggressive lease deals.

Before agreeing to any lease terms, ask for the following information at minimum:
1) Allowed miles and cost per mile for excess mileage
2) Capitalized Cost (acquisition cost of the vehicle, less any factory/dealer contributions, less your contributions, plus taxes/fees)
3) Residual cost (your contractual cost to purchase at the end)
4) Ask if there are any end of lease fees or any fees if you decide to purchase
5) money factor
6) Is there a security deposit? (this is not applied to CCR - it's money you put in up front which is generally returned at the end of the lease).

note that if you sign on to a lease and then need to break it for whatever reason before the end of the term, you normally have to pay the sum of all remaining payments (less interest, in some cases) + the full residual cost and any taxes that may be incurred, and possibly a lease termination fee.

This is just off the top of my head. If I think of anything else, I'll come back.


Thanks Jeff!

CanTeX
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Re: Questions regarding: lease, then buy option    (Score: 1, Normal) 05-27-2018 13:46
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The residual was ~$22,650 on my TLX, which was higher than retail at the time. The auction buyer was a Honda dealer in Oklahoma where thecar sat for five months or so. I figured I could have picked it up for <$19K., maybe less. But the low seating killed the prospects.

So if you really like the car, follow the VIN and see if you can strike a deal with the new dealer.

NorCalSales
Profile for NorCalSales
Re: Questions regarding: lease, then buy option    (Score: 1, Normal) 08-20-2018 13:04
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Anddddd... 3 months late to the party here but if you really like the car and the residual is much higher than the trade value go to the turnin dealer and say...

1. Please tell me what you can buy it for on the VIPS site, in this situation this will be a few thousand under residual
2. Do a quick safety that I will pay for... if the car has 36k be aware they will probably want to do brakes and maybe tires as wear is over 55% at that point.
3. Charge me $250 over that.

You can keep your car and only have it out of your hands for a day or 2 and save a grand compared to retail and have new brakes and tires on it.

The dealer gets to do the safety, make $250 and the flat on the finance will have them making prolly $700 total gross (which is maybe $2-250 net) instead of zero... and someone who might become a service customer because you helped them out.

JeffX
Profile for JeffX
Re: Questions regarding: lease, then buy option    (Score: 1, Normal) 08-21-2018 11:57
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NorCalSales wrote:
Anddddd... 3 months late to the party here but if you really like the car and the residual is much higher than the trade value go to the turnin dealer and say...

1. Please tell me what you can buy it for on the VIPS site, in this situation this will be a few thousand under residual
2. Do a quick safety that I will pay for... if the car has 36k be aware they will probably want to do brakes and maybe tires as wear is over 55% at that point.
3. Charge me $250 over that.

You can keep your car and only have it out of your hands for a day or 2 and save a grand compared to retail and have new brakes and tires on it.

The dealer gets to do the safety, make $250 and the flat on the finance will have them making prolly $700 total gross (which is maybe $2-250 net) instead of zero... and someone who might become a service customer because you helped them out.



Thanks. I will consider pursuing this track when the lease on our Si is up.

owequitit
Profile for owequitit
Re: Questions regarding: lease, then buy option    (Score: 1, Normal) 08-22-2018 02:44
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Mikeydred wrote:
JeffX wrote:
Mikeydred wrote:
This is great information, I was thinking of posting similar as I have never lease but decided that will be next option. Will manufacturers actually tell buyers the projected value or do they usually inflate to hold profit? Also, after the lease is up is the purchase price negotiable based on market value or is it predetemined by dealers?



it will all be in the contract that you sign when you purchase the vehicle. Usually the terms aren't very negotiable if it's one of those nationally advertised aggressive lease deals.

Before agreeing to any lease terms, ask for the following information at minimum:
1) Allowed miles and cost per mile for excess mileage
2) Capitalized Cost (acquisition cost of the vehicle, less any factory/dealer contributions, less your contributions, plus taxes/fees)
3) Residual cost (your contractual cost to purchase at the end)
4) Ask if there are any end of lease fees or any fees if you decide to purchase
5) money factor
6) Is there a security deposit? (this is not applied to CCR - it's money you put in up front which is generally returned at the end of the lease).

note that if you sign on to a lease and then need to break it for whatever reason before the end of the term, you normally have to pay the sum of all remaining payments (less interest, in some cases) + the full residual cost and any taxes that may be incurred, and possibly a lease termination fee.

This is just off the top of my head. If I think of anything else, I'll come back.


Thanks Jeff!



If you are going to lease, and especially if you have never done it, I highly recommend going to www.leaseguide.com and paying for the leasekit. We have had ours for years now, but it has saved us thousands so far. Getting ready to try and use it again. They explain everything you could possibly wonder about leasing and they tell you specifically how everything is calculated, what to look for, what the terms are and even how to manually calculate everything yourself. It makes it really easy to find how and where you are being fleeced, if you are being fleeced. At the very worst, you can make sure you get a fair deal.

Leasing is actually pretty easy, but like Jeff said, there are some ways they can tweak numbers.

Mikeydred
Profile for Mikeydred
Re: Questions regarding: lease, then buy option    (Score: 1, Normal) 08-23-2018 16:17
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Thanks Owe, just look it up $19.95 for kit and covers hundreds of models. Looks like a good homework tool for experienced and beginners to the lease game
owequitit
Profile for owequitit
Re: Questions regarding: lease, then buy option    (Score: 1, Normal) 08-24-2018 01:16
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Mikeydred wrote:
Thanks Owe, just look it up $19.95 for kit and covers hundreds of models. Looks like a good homework tool for experienced and beginners to the lease game


I use it 100% of the time and it is accurate to the penny. It has caught many an extra charge, rolled in profit margin or other way of putting some cash here and there. It doesn't necessarily tell you where they are adding it in (you have to reverse engineer that), but it will tell you that they are.

We paid $19.95 for it some years ago, and like I said, it has saved us thousands.

TonyEX
Profile for TonyEX
Re: Questions regarding: lease, then buy option    (Score: 1, Normal) 09-17-2018 20:03
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JeffX wrote:
...

Thanks. I will consider pursuing this track when the lease on our Si is up.



You better take care of that car, they are hard to come by.

I got dibs on it when it goes off your lease. :-)


 
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