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Purchasing at the End of Your Lease

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Comments

  • igozoomzoomigozoomzoom Waleska, GeorgiaPosts: 801
    Leasing can be a good option for someone who wants to drive a new car every few years. As long as they maintain their vehicles well (physically and mechanically) and know they will stay within the number of miles allowed, it can be a good fit. A lot of us are always going to have a car payment, even if we purchase instead of lease but trade every five years (as soon as its paid off). Leasing vehicles with traditionally high resale value is also a smart move to keep payments low.

    But I'll also admit that I can negotiate a better purchase deal than I can a lease deal. I understand how lease payments are determined (residual values, money factors, etc.) but I've always been able to hammer out a purchase deal that's a better deal in the long run. Of course, the purchase deals have significantly higher payments, which highlights one of the most attractive aspects of a lease- lower monthly payments!
    2015.5 Volvo S60 T6 Drive-E Platinum, 2012 Mazda CX-9 GT
  • dwynnedwynne Posts: 4,018
    That is a nice benefit for employees and I know of several companies in my area where friends have worked that had a similar deal.

    This IS different in that the lease company is also a licensed car dealer and holds title on the car, so they are in effect selling the car at the end of the lease to a 3rd party (with the lessees blessing). No different from what I have done in the past, but had to pay a dealer for the service. Now, if you wanted to buy one of my on-lease cars we would have to find a dealer to pay for the paperwork, since I would have to pay sales tax to buy it off lease and then you would (likely) too. If you lived here you would for sure. Get a dealer to handle the paperwork then you could buy it for my buy out price plus what the dealer charges and then pay tax when you title it at home.
  • dwynnedwynne Posts: 4,018
    Unless there is a lease only (or purchase only) incentive, you should get the same price for a lease or a purchase. There is no difference to the dealer (absent these incentives). Often, they will have a cheap lease deal (well below market) and a low or 0% finance offer - both. One catch can be the low finance can't be combined with some dealer incentives, but the cheap lease CAN.

    I helped my youngest son lease a new Civic LX sedan w/auto this year. With the cheap lease and incentives he is paying < $200 tax included with only first payment and tags paid at signing. We ran the numbers with the discounted financing at the time and it was a lot more. Even working part time while he goes to collegel he can afford a sub $200 car note and insurance - and drive a new car under warranty. If they offered 0% financing (and they were not at that time) it would have been $100 or more a month including tax to finance for 60 months compared to the lease.

    Another hidden factor in most folks lease VS buy thinking is that the majority of folks trade in their used cars and get ripped off by the dealer. If you sell your used car and pocket the equity, then you are doing a lot better - but most folks do not want the hassle. So they always trade before they are paid up, lose on the trade, and get something new. Much better to just lease, return, lease. So nice to shop for a new vehicle without a trade. Many folks tell you they always bargain the dealer up on the trade, but if you are paying wholesale (at or below invoice less incentives) for a new car then you are going to get auction money for a trade - unless it is something highly desireable to the dealer. If they give you decent money for your trade, that is coming out of the new car or you missed an incentive in your pricing.
  • Thank you so much. I realize it is a lot to ask, but do you think I can still negotiate with them to buy for less than the residual ?
  • Correct 2008. Thank you for your advice, much appreciated
  • Thank you so much ! It is the EX-L so we have the leather / heated seats and sun roof, no RES or NAV though.
  • My 2008 Jeep Grand Cherokee Overland (2WD) lease is up 3/8/11. Chrysler Financial has called and wants us to meet with a local dealer to discuss "options." I wouldn't mind buying it if I could get decent terms, but not sure what they are doing these days since I've heard GM is doing Jeep financing on new deals. Would love a new GC, but would rather buy than lease again. My payment has been $475. Mileage is under the 15K per yr limit (just over 40K), vehicle is in decent shape. Payoff is currently just over $20K, prior to making this month's payment. My credit is pretty good, so I should be able to qualify for a decent rate. I'm not sure how much I can get off on a new 2011 GC Overland, if I purchased. Are they giving loyalty incentives? We recently moved into a new house and I haven't been able to find the box with my lease paperwork, so not sure on turn-in fees etc.

    Any suggestions or similar experiences? Thanks.
  • Original sticker price on the vehicle was $42K; we had a 0% apr on the lease. It was a very good deal!
  • igozoomzoomigozoomzoom Waleska, GeorgiaPosts: 801
    You need to find the lease contract to see how much it shows for the residual value at lease end (aka- the amount you can purchase it for)! It should also show fees required at turn-in and may show if there are any purchase fees if you decide to buy it. You need to know all of that information before you discuss anything with the dealer or Chrysler Financial...just so you're well aware of where you stand contractually.

    If the price in the lease contract is more than the vehicle's current value, don't even consider buying it. Another important question to ask will be regarding the Powertrain Warranty! The 2008 Jeep Grand Cherokee had a 3yr/36k Bumper-to-Bumper Warranty and Lifetime Powertrain Warranty (unlimited miles) BUT only for the ORIGINAL OWNER. Will the Lifetime Powertrain Warranty apply if you purchase it...or will your purchase be seen as a 'transfer' of ownership and invalidate it???

    In all honesty, I'd consider all my options before making a decision to purchase it. Consumer Reports ranks the 2008 Grand Cherokee V8 reliability as being 'Poor' and that would make me reluctant to purchase the vehicle for the long haul.

    I'm guessing that you haven't driven a 2011 Grand Cherokee yet? I'm fairly certain that once you drive the 2011, you'll be chomping at the bit to turn in your 2008 for one! The interior is amazing, both in quality and appearance/function. The ride and handling are top-notch, as good as anything from Cadillac or Lexus! In my opinion, it's easily the best looking SUV outside, too.

    If I'm not mistaken, your '08 Overland has the 5.7L 'Hemi' V8 (standard on the '08 Overland). All 2011 Grand Cherokees have Chrysler's brand new "Pentastar" 3.6L V6 standard. It makes 290hp vs. 330hp in your current 5.7L V8 and it's plenty of power for the 2WD Overland (0-60mph in under 8 secs). It's also rated at 16mpg city and 23mpg highway vs. 13mpg city and 19mpg highway you get now....a 3-4mpg improvement! The 5.7L V8 is still offered as a $1495 option for those who need/want it.

    Sticker price for the 2011 Overland 2WD is $39,190. Unless you want a Rear DVD Entertainment System, Towing Package, 5.7L V8 or the pricey high-tech Advance Warning & Adaptive Cruise Control Package, there aren't any other options. The Overland's base price includes 20" wheels, Power Moonroof, Heated front & rear seats, Ventilated (cooled) front leather seats with contrasting edging; Heated hand-stitched leather steering wheel with real wood upper trim and power tilt/telescoping; soft-touch leather door trim panels, dashboard pad and center armrest; Keyless Enter-N-Go (keyless entry, push button start); Power Up/Down Remote Liftgate; Alpine Premium 506-watt 9spkr audio system; rain-sensing wipers; UConnect w/ GPS Nav, SIRIUS satellite radio & traffic and integrated phone capability. You get the idea...a LOT of FEATURES for the price! (Can you tell that I really want one of these?)

    The Overland 2WD is selling for around $37,100 ($2000 off MSRP) and there is a $1000 Owner Loyalty Rebate currently that would bring it down to about $36,000. Low APR financing is also being offered at 3.9% for 60 months or 5.9% for 72 months. $36k, with $3k down pymt, financed for 72 months at 5.9% would be about $550/month OR 60 months at 3.9% would be around $615/month.

    Keep in mind that incentives and discounts will probably change over the next three months. Newly redesigned vehicles usually aren't introduced with heavy incentives and dealers try to avoid discounting at first, but I'd be willing to bet that deals will be better a few months from now! =) GOOD LUCK!
    2015.5 Volvo S60 T6 Drive-E Platinum, 2012 Mazda CX-9 GT
  • chigirlintexaschigirlintexas Posts: 73
    edited December 2010
    I am still going through boxes to find that paperwork. I have a payoff amount according to my account online at Chrysler Financial, but I'm sure there's some snarky stuff on the contract that isn't displayed there. I looked through my old posts here on the forums and found that my residual is $17172. Don't know about fees, tho.

    I have done a ton of research on the new GC Overland and am as impressed as I can be. I could probably just take one home without driving it, that's how much I like it. I've been very happy with my '08 GC, and for the '11 to be so much better, well, let me just have it already! My problem is, I got such a phenomenal deal on the '08, it will be difficult to match, and also, I'm having problems locating the vehicle I want within a 300 mile radius of where I live. I want a red Overland, no rear DVD, no Adaptive Warning/etc., but I do want the Towing package. Right now I'm leaning toward the V8 but could go either way. I live in central Arkansas (just moved from the Dallas area) and am have been looking at dealers in both areas. One dealer near Fort Worth had an internet price on an Overland of $6200 off MSRP. Not my color tho.

    Have to figure out my financing options too, to see if I can do better than what they are offering. Maybe going with an outside finance co. will get me a better rate. Or, if the 08 Jeep is worth more than the residual, sell it to CarMax and put some & down. Or would that void my Loyalty Incentive? Can you get gap insurance on a purchase? I've leased for so long I've forgotten what purchasing is like....

    Thanks for the enthusiastic info on the Overland. It is what I want; I just don't know if I'll be able to make it happen or not. Will keep you posted.

    Nina
  • igozoomzoomigozoomzoom Waleska, GeorgiaPosts: 801
    We both obviously have great taste- Inferno Red Crystal Pearlcoat is the sharpest looking color, well worth the $225 upcharge. I found two identical units, both sticker at $41,605 and have the 5.7L V8, Trailer Tow Group IV and they are Red with Dark Frost Beige/Light Frost Beige interior. One is in Paris, TN (about 260 miles from Little Rock) and the other in Bessemer, AL (B'ham suburb, 360 miles from Little Rock)!

    The vast majority of Inferno Red Overland models seem to have the Dark/Light Frost Beige interior color, is that the interior color you would want? Red is also available with Black interior (saw one or two 4WDs so equipped) and will be when the special Saddle Leather trim is available for a slight upgrade charge.

    I only spotted one Overland with the 3.6L V6 and it was 4WD, so the 5.7L seems to be almost a 'mandatory' option at least for dealer stock units! You'd probably have to order one to get an Overland 2WD V6 in Red with the Trailer Tow Group. Much easier to just find one out of dealer stock like the two above!

    Regarding the Owner Loyalty Rebate, here are the details-

    Loyalty Bonus Cash is available towards leasing or retail purchases to customers with a Chrysler, Dodge, or Jeep lease that expired within the past 60 days or will expire before August 3, 2011. Lease turn-in or trade-in is not required. Offer is transferable to immediate family members residing in the same household. See participating dealer for details.
    2015.5 Volvo S60 T6 Drive-E Platinum, 2012 Mazda CX-9 GT
  • igozoomzoomigozoomzoom Waleska, GeorgiaPosts: 801
    We both obviously have great taste- Inferno Red Crystal Pearlcoat is the sharpest looking color, well worth the $225 upcharge. I found two identical units, both sticker at $41,605 and have the 5.7L V8, Trailer Tow Group IV and they are Red with Dark Frost Beige/Light Frost Beige interior. One is in Paris, TN (about 260 miles from Little Rock) and the other in Bessemer, AL (B'ham suburb, 360 miles from Little Rock)!

    The vast majority of Inferno Red Overland models seem to have the Dark/Light Frost Beige interior color, is that the interior color you would want? Red is also available with Black interior (saw one or two 4WDs so equipped) and will be when the special Saddle Leather trim is available for a slight upgrade charge.

    I only spotted one Overland with the 3.6L V6 and it was 4WD, so the 5.7L seems to be almost a 'mandatory' option at least for dealer stock units! You'd probably have to order one to get an Overland 2WD V6 in Red with the Trailer Tow Group. Much easier to just find one out of dealer stock like the two above!

    Regarding the Owner Loyalty Rebate, here are the details-

    Loyalty Bonus Cash is available towards leasing or retail purchases to customers with a Chrysler, Dodge, or Jeep lease that expired within the past 60 days or will expire before August 3, 2011. Lease turn-in or trade-in is not required. Offer is transferable to immediate family members residing in the same household. See participating dealer for details.
    2015.5 Volvo S60 T6 Drive-E Platinum, 2012 Mazda CX-9 GT
  • So, I have found the paperwork on my 2008 Jeep Grand Cherokee Overland 2WD lease. The lease is up on March 8. The residual is $17173.80. If I buy the vehicle, I have to pay a $150 fee. I will have to re-register and re-title the vehicle as well. I am well under my allowance of 48,750 miles, at about 41K. Right now, Chrysler Financial says I can pay $20,417 to buy today (before this month's payment). If I turn in the vehicle, there is a $425 fee, but I would bet they might waive that if I got into a new vehicle.

    Finance folks-- do they typically waive the turn-in fee if I buy/lease a new vehicle? Right now it appears that the trade-in value is right about what I owe. Do you think it will drop considerably by March? If I'm going to buy a new one, should I pull the trigger now or wait?

    Would love some opinions.... just not sure if I want to buy the old one or get a new one. The new model has seduced me...
  • qbrozenqbrozen Posts: 26,721
    Maybe I'm missing something... but aren't you talking about just 3 remaining payments? That's less than $1500, yet they want to charge you $3k more to buy it now. Doesn't make sense to me.

    Odds are, there is a pull ahead program and you could even swap it out now while they waive your remaining payments.

    '19 Ioniq plug-in, '10 Equinox LS; '08 Charger R/T Daytona; '67 Coronet R/T; '14 Town&Country Limited; '18 BMW X2. 50-car history and counting!

  • dwynnedwynne Posts: 4,018
    edited December 2010
    The dealer may "pay" that turn in fee for you, but you know that will come out of your end of the deal with an increase in your bottom line price.

    I agree that the buy now number is fishy - the buy today price is $3,093 higher than the residual + $150 price and you only owe Dec, Jan, and Feb payments. So it seems a lit higher to buy now that it should - unless they have figured in some taxes or something in the today price.

    If your goal is get a new ride, then see if a dealer (like carmax) will give you the buyout price on it today. If they will, then let them have it and get a new ride. If you can't find a dealer to cover the buyout, then just turn it in March and get your new vehicle.
  • I am looking to buy my vehicle at the end of it's lease and I am wondering why I have to pay sales tax a second time. I paid taxes when I leased the vehicle and now they plan on charging me sales tax to purchase the vehicle. It seems that they are double dipping. Does anyone have any ideas. I live in Illinois if that makes any difference.
  • sebring95sebring95 Posts: 3,241
    Why? Because that's the law in Illinois. Sucks, but so do most of the tax laws in that state. This makes leasing even less attractive in the few states that charge sales tax on the full transaction at lease inceptions.
  • mln2mln2 Posts: 1
    what is lease residual value
  • 08 A4 Quattro lease up this week. Need to figure out 1) do I buy '08, 2)do I buy new '11, or 3)do I lease new '11. Option 1 would involve $20,880 residual payment plus $350 to Audi. Total paid for car including downpayment, lease payments & residual would be $37,951. Option 2: Buy '11 A4 Quattro with premium pkg, other options, tax, tags & Audicare for $37,000 (MSRP is $37,420). Option 3, offered lease on new '11 of $3,000 down, $439/mth for 42 months, residual of $20,581. But, should I want to buy car at end of lease, would cost $42,019 for a car I negotiated to pay $37,203 for (including tax, tags, title, Audicare, etc.) That seems crazy. I'm not sure which is most cost effective though it would seem buying new car may be. Advice??
  • sterlingdogsterlingdog North CarolinaPosts: 6,984
    We were sent from another thread to assist you (Stories From the Sales Frontlines). I'm a regular consumer poster there. Here is my two cents. Why not buy the new '11? Why have $38K invested in a three year old car when you can buy new for a deal that is less? You'll enjoy the ownership, warranty, and the trade in value down the road. Plus, you'll have something to really trade in later. It seems a no brainer to me. You would really enjoy that new vehicle. Best of luck to you.

    Richard64
  • tifightertifighter WAPosts: 2,426
    edited January 2011
    Thing is, you've already paid nearly half the cost of the 08 already.

    The last three years of payments are already a sunk cost, so it is not as easy as $38k for a three year old car. You are not seeing that money again no matter what, so it really is $21k-ish for a 08 vs. $37k for the 11. If you want the 11, buy it because you like it, not for resale, etc. Just my thought.

    Tesla X Performance / Tesla 3 Performance

  • Kirstie_HKirstie_H Posts: 11,077
    edited January 2011
    My thoughts include taking into account the anticipated maintenance & repair costs of the '08 in the coming years. There are some vehicles that I'd personally be more prepared to lease than to buy, and Audis are among those.

    Plus, if a person is considering leasing new instead of turning in, I tend to think they're at least halfway to wanting a new vehicle. If the '08 is purchased, then the OP changes his/her mind and wants to sell it soonish, then the overall cost is likely to be greater than a new purchase or new lease.

    My first question is usually, "are you happy with your current vehicle?" If the answer is "very," then of course the best financial decision is to buy it. But that's not always the only factor.

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  • tifightertifighter WAPosts: 2,426
    Agreed. If the OP wants the 11, buy it. All I'm saying is don't think of the 08 as $38k vs. $37k for the 11. There's no looking back on what you've already spent now; that's the nature of leasing.

    Tesla X Performance / Tesla 3 Performance

  • Thanks to all for your advice. Still not sure what I will do but need to decide ASAP. I have always been a "buy" person and took over my husband's leased car. That's why I keep focusing on bottom line comparisons. You, like my husband, keep saying when leasing, don't look back on what's already spent. That's hard not to do!
  • graphicguygraphicguy Edmunds Poster EmeritusPosts: 11,718
    I'm not a big fan of leases, for the very reasons you're dealing with now. Because of fees, bank/manufacturer acquisition/disposition costs, etc, leases are rarely the good deal (at least not the kind of deal I expect). I disagree with your husband. If you don't look at what you've already spent, how do you make a decision about what you're going to spend?

    Personally, I'd want to get out of the whole lease "thing". Buy your current A4 if you like it. Finance the residual if you have to. Pay it off over whatever period of time that requires. That way, when you're truly ready to buy another car, you can use the current one as a down payment and start the cycle all over again (if you choose). You're current car has about another 6-7 years of life left before some of the repairs will turn costly.

    Good luck!
    2018 Acura TLX 3.5 SH AWD A-SPEC
  • I have a 08 Escape limited slated to end in April. I am not buying out the lease but my sister's fiance would like to, the car is in great shape and seems to be a good deal. I called Ford and they will not arrange a third party buyout. So I was thinking, he could provide me the cash to purchase the vehicle outright which I would then "sell" to him at the same price, adjusted if we get hit with sales tax twice. I'm not looking to make anything off the transaction, just getting him a good deal. The buyout price is roughly $14880, and the blue book and edmunds used value put it at $18,900. We both live in ny. My question/ concern is there some rule or legal issue that could prevent this? Do I have to own the vehicle for a time period before reselling? If the transactions are done in cash, will our signatures on appropriate froms be suitable? I'm willing to complete whatever dmv paperwork, but concerned for unanticipated hassles.

    P.s. it seems dealerships are unwilling to negotiate buyout price, but any chance paying in full will give a little sway?...the more saved the better.
  • kyfdxkyfdx Posts: 143,068
    I don't have all the answers to your questions, but if it were me.. I'd go to the dealer where I leased the car, and find out what price he could sell the car to your sister's fiancee... It's possible that his price from Ford Credit is less than your residual, and he could make a few hundred dollars, and still sell it to your future brother-in-law for around the residual.. with no chance of paying the sales tax, twice...

    It's worth a shot, before trying to do it the other way... much cleaner..

    Did you get a good deal? Be sure to come back and share!

    Edmunds Moderator

  • Thanks, I did go to the dealership originally, before I even knew what a third party buyout was, to see what the early lease end offerings they were contacting me about were and to inquire about this situation. I'll ask again, possibly a manager, but the salesman told me to buy it and sell it just as I described. Having never participated in this type of a transaction I figured a little research would be in order so nothing pops up later. Search engines yeild little specifics, figured a forum to be a good source for any cautions. So if anyone has something to look out for or be aware of, it is appreciated.
  • Made my final payment for 39 month lease on 2007 Lincoln MKX. Inspection report is clean, I owe nothing - mileage 28,000. Cap cost $30,360. Total I paid for 39 payments $403 each = $15,720. Ford credit pre-approved me for never missing a payment. The purchase option price $18,443 incl tax and fees. I've done research and that seems to be a great price. I've always leased but cannot afford anything new, so I'm considering puchasing this car, :confuse: dealer insists on adding $300 doc fee and says that Ford rate is 6%. Should I look elsewhere for loan? if so where?
  • The doc fee is legal, however my understanding is the dealer must charge that fee to all customers or risk exposing themselves to discrimination lawsuits. As for the 6% APR, my experience tells me that rate is primarily determined by the lender, subject to your credit profile. There may be a 1% or so pad in that rate that allows the dealer to make something on the deal since there is no profit in the deal for dealer otherwise. The dealer still has to pay the administrative staff for processing your deal documents. You may be able to get a better rate going through a credit union. If you have a good relationship with your bank I would talk to them about a loan too.
  • Kirstie_HKirstie_H Posts: 11,077
    Thanks for that, and welcome to the Forums!

    Yes, I'd shop that rate around. If it's within the same 30 days for say, a car purchase, it won't hurt your credit rating. Ask your bank or credit union. At least tell them you're doing so... you might find the rate magically decreases if you've got good credit when you're shopping around.

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  • sebring95sebring95 Posts: 3,241
    As mentioned, doc fee is legitimate and reasonable in my book. As for the rate...a lot depends on the length of the loan. It might be a tad high for a 36-48 month term but not by much. It is a used car which will always have a slightly higher rate and there will not be manufacturer support (i.e. incentives). Credit union is best bet for a loan.
  • Would like to ask if it is worh buying out my 2008 328xi with cold weathe pkg? lease is coming to end in couple of month. Lease was $0 down, with $430/- month for 36 months. I will be barely couple of hundreds miles over the limit/30K. Buyout price is $24000+tax+doc fee. I have some damage and It would be $1800 expense to turn it in all.
  • igozoomzoomigozoomzoom Waleska, GeorgiaPosts: 801
    ***Is it a 328xi Coupe or 328xi Sedan? For my answer below, I assumed it is the 4-door Sedan, but if it is the Coupe the current value is higher....

    Edmunds calculates the Retail Value at around $25,200 and KBB is a bit higher at $26,400. If your car has any options other than the Cold Weather Package that you mentioned, the value would be a little higher. I checked AutoTrader listings for 2008 328xi Sedan with similar mileage and the non-CPO listings were in the $24,800-$27,500 range. Based on that, the Edmunds Dealer Retail Value of $25,200 is accurate, maybe even slightly conservative. BMW dealers are advertising CPO examples of this model with 30-35k miles for $29-$31k!

    Purchasing it for $24,000 will actually save you $1800 in fees/excess mileage, so it's actually $22,200 plus tax/doc fee to buy it. If you like the car and want to keep it, this looks like a good deal. If you aren't crazy about the idea of buying it, turning it in and walking away won't be a financial disaster either. Granted, you'll have to pay $1800 just to walk away with nothing, but that may be a small price to pay if you don't want to keep the car!

    About the $1800- I'm assuming part of it is for the miles overage, but you also menitoned 'damages'- what sort of damages? If you decide to turn it in, are there any items you could have repaired beforehand that would be less expensive? Are you comfortable that $1800 is an accurate estimate of what you will actually owe?
    2015.5 Volvo S60 T6 Drive-E Platinum, 2012 Mazda CX-9 GT
  • thanky you for the reply. I am leaning towards buying too. I like the car and 2011 model is almost similar..$1800 includes tires, windshield, - bumper. I could save may be couple of hundred if I get it done outside
  • You didn't mention it but are you also going to purchase the extended maintenance and mechanics warranties? I am/was considering purchasing my 2008 335i at the end of my lease this spring. I have no problem paying for my overage in mileage ahead of time so at the end of the lease, I don't anticipate additional expenses. However, since you are covered, by default, for 4 years/50k miles, once you hit those limits you are completely on your own.

    In speaking to my dealership, I found out that the extended maintenance that runs about $2000.00 or so does not cover a good portion of the major things that could go wrong with your vehicle and that a separate "mechanics warranty" would have to be purchased in addition to the "generic" extended maintenance warranty for a total of close to $6000.00 for both; will cover 6 years/100k miles, or something along those lines. BMWs are pricey to own so don't go into purchasing your 328xi without getting details on extended warranty costs.

    I just had to get something replaced on my vehicle that required some extensive maneuvering just to get to whatever little piece they needed to fix/replace; the price for the new part was minimal but hearing that they spent almost 20 hours working on my car and knowing that the labor rate is $145.00 an hour….................imagine waltzing into your dealership, returning your loaner to pick up your vehicle and being handed a bill for upwards of $3000.00 due on the spot?

    Just keep that in mind as you consider taking on ownership of your vehicle. Talk to your dealer as I think the mechanics warranty may be localized while the &#147;generic&#148; extended maintenance warranties, I've read, can be shopped for at various dealerships for competitive pricing. Ask all the questions and get all of the pricing details in advance so you are fully aware of what happens once that car is officially all yours.
  • I am looking to lease a car (for the first time) and am a little confused abut why the general assumption is that buying more economical.

    The way I see it, you pay the finance charges for the entire loan amount and you pay down a fixed amount of depreciation.

    At the end of the leasing period, the actual value of the car is either more than or less than the residual price.

    If the value is more than the residual price then you simply buy out the lease. In this case, you have lost nothing over buying the the car originally.

    If the value of the value of the car is less than the residual price (and assuming you did not exceed the miles) then you hand over the car to the leasing company.

    The above assumes that the buying and leasing financing rates are the same (which I am finding is not a bad assumption).

    So - if I am doing the lease math correctly (and for the financially inclined) the leasing company is selling a call and a put option to me at a strike (residual price) for a fixed expiration (lease term) and doesn't seem to be charging for it. Leasing always seems to be financially better than buying because I have no option there - I own the asset and am exposed to the upside as well as downside.

    Appreciate any feedback.

    Thanks.
  • sebring95sebring95 Posts: 3,241
    edited February 2011
    I've found in the past that anything but a deal with a captive will not be as competitive. The banks tend to charge significantly more for their lease financing. Comparing a current Acura deal on an MDX, the lease rate works out to be about 2.1% vs their .0-9-1.9% finance offers. That doesn't sound like much but it works out to be $500-$1,500 easily over the term. You will also spend more interest with the lease even with identical rates simply because the lease will always have a higher outstanding balance. So from a true cost standpoint, they do charge you more for that fixed residual.

    The rest usually comes down to fees, additional insurance costs, required gap coverages, possible mileage/condition charges. Plus you're required to make a financial decision at the end of the lease. Even if you give it back, you have to guy buy a new/used vehicle. If you go into it planning to buy out at the end (and finance it) you'll end up spending a lot more in interest over the full term. Rarely can you buy it out at the end and make any money on it. There may be some collateral but there's usually quite a few fees completing the buy out and then whatever costs you have to sell it.

    IMHO, the average consumer is far more likely to spend more money on a lease than financing. They either don't understand the terms, get charged too much cap costs, or are only going that route for the cheap payment.
  • The lease on my 2008 Jeep Grand Cherokee Laredo is up at the end of the month. The buyout is $16,000 + taxes. Should I buy the Jeep then immediately turn around and use it as trade in for a new vehicle or is it better to just turn the leased Jeep back in? Or, if there is any implied "equity" (difference between current market value and buyout amount) in the vehicle, is there any way to use that as a down payment on a new lease?

    Jeep has 36K miles and it's in perfect condition.
  • sebring95sebring95 Posts: 3,241
    If there's equity you could trade it before the lease is up. The dealer will just buy-out your lease directly from the bank. If you buy it out yourself you'll pay sales tax and usually by the time you do that the equity is chewed up. You might be able to get the tax savings back on the trade for a new car...but that depends on your state sales tax laws.

    The only way you might come out ahead is if you tried to sell it privately...but obviously you'd have to get at least more than the tax to make it worthwhile.
  • karhill1karhill1 Posts: 163
    Sorry, but a documentation fee is neither legitimate nor reasonable. Such fees are nothing but pure profit for the dealer. Doc fees may be legal but a smart customer should not pay the fee.

    For many years I have simply negotiated a vehicle price and then let the dealer structure it to fit the needs of the dealership. If I negotiate a price of $20,000 that is the price I will pay. I am always happy if the dealer structures the price as $19,800 for the vehicle and $200 for a documentation fee. Sales taxes are not applied to this fee, which actually makes my out the door cost a bit less.

    The key is to never let the dealer add any fees, other than those required by the Government such as sales tax and plates, to the price a customer is willing to pay for a vehicle. If a particular dealer insists on adding an outrageous fee (such as those in Florida or Virginia) to that pricet the customer should simply walk away. There is always another dealer from whom a car can be bought.

    Customers need to recognize in any car deal it is actually the salesperson who is dependent on the customer. Once a customer walks out the door, the salesman has no assurance the customer will return to buy the vehicle. My experience has shown not many dealers really want to lose a sale over a documentation fee which, after all, is not a cost to the dealer which needs to be covered in the sale.
  • Doc fees are legitimate. Nothing illegal about them. And no, they are not "pure profit", as most dealers support their office staff from them. Are some unreasonable or excessive? Yes, in many cases. But dealers are a "for profit" business, after all. And in many states, the doc fee is taxable.

    Telling people to walk away simply means they won't be buying a car in that market, which may mean the whole state or region. Better advice would be as you said, work from a total number.
  • sebring95sebring95 Posts: 3,241
    Keep in mind this discussion is concerning a doc fee for buying out a lease. There is really no dealer profit in a deal like this because they are just simply pushing paper and this takes time and expense. You can usually shop around for a dealer that will facilitate the buy-out but I can't imagine any doing this for free. I have been quoted $700 by some dealers and I walk from those. $200-$300 seems to be the normal cost.
  • We're coming to the end of our Honda Accord Lease. What what owe on the lease is well below current resale value. We had hoped to purchase a new car, but it's simply outside of our budget right now. We then considered getting a certified used car -- but even then we're looking at a cost higher than the current payoff of our Accord. Our next thought is to simply buy the Accord, assume ownership, and after a few years trade it in as part of the downpayment on a new car.

    Ideally we would have just purchased the car originally -- I recognize the financial shortcomings in going the lease-buy route. Given our current circumstances, though, it seems most in our favor (and within our budget) to purchase the car (which is in great shape) and make the move to buy a new car a few years down the line.

    OR --- do we turn it in and buy a different, more expensive, used car now? Thanks for any input!
  • sebring95sebring95 Posts: 3,241
    I cant any reason to buy anything else if this car is working for you. You've already paid more for the car than it's worth (hence the lower residual to market value) so you might as well capitalize on that. If you're really worried abour repairs (you mentioned certified used) you should be able to add a Hondacare warranty to this one pretty easily if it's still under original warranty. I don't advocate buying warranties but if it helps you sleep better...go for it.
  • So assuming I go ahead and buy the car -- which I'm thinking I'm going to do: what's the opinion about getting financing through the dealership vs. going to a bank for a loan on the balance of the lease. I recognize that there will be fees through the dealership for managing the transaction, but in some ways is that worth it so I don't have to deal with the title/registration transfer, etc?
  • sebring95sebring95 Posts: 3,241
    Does Honda require you to buy from a dealer or will they sell it directly to you? If you can get it directly from Honda Finance they may also be able to provide financing and that would be the easiest option. Dealership would be the next easiest and sometimes they have better rates than cold-calling a bank. They usually have negotiated terms and the also get a little kick-back from the bank so there might be less fees if a dealer has to handle the transaction. Credit Union is the next best option and many are very lenient about handling the title. Good luck!
  • I ALREADY KNOW THAT I HAVE TO BUY MY LEASE (HONDA ACCORD 09) BECAUSE I USED ALL THE MILES ALREADY AND I STILL HAVE ONE MORE YEAR TO GO. BUT IF I BUY IT RIGHT NOW THEY WANT ME TO PAY AROUND $400 PER MONTH, IM PAYING $300 MONTHLY FOR THE LEASE . IS IT BETTER IF I BUY OUT THE LEASE RIGHT NOW OR JUST WAIT UNTIL THE END OF THE LEASE? I MEAN ITS A HUNDRED DOLLARS DIFFERENCE THAT IM GOING TO BE PAYING PER MONTH IM NOT REALLY WORRIED ABOUT THE PRICE OF THE CAR IM JUST WORRIED ABOUT MY MONTHLY PAYMENTS RIGHT NOW. AND ALSO IF I BUY IT RIGHT NOW OR AT THE END OF THE LEASE DO I STILL HAVE TO PAY FOR THE EXTRA MILES THAT I USED? CAUSE THATS WHAT THE MANAGER TOLD ME AT THE DEALER WHICH I THINK IS BS BUT I JUST WANT TO DOBLE CHECK WITH YOU GUYS....
  • kyfdxkyfdx Posts: 143,068
    If you know you are going to purchase eventually, no need to do it sooner... Your $300 payment is not being wasted.... it is paying down the balance of the lease. If you buy now, you are financing a higher amount than you will at the end of the lease.

    The dealer is wrong about the mileage (assuming it's a Honda Finance lease). He is likely telling you that, to incentivize you to buy a new car from him. I'm pretty sure you can buy your car from Honda Finance, directly, without involving the dealer, once the time comes.. (it used to be that way).

    Did you get a good deal? Be sure to come back and share!

    Edmunds Moderator

  • dwynnedwynne Posts: 4,018
    Here (and most other places) sales tax would be due when you purchased off lease. This would eat into your profit for flipping the Jeep and if you do a new lease then not much tax relief from trading in a vehicle either (most states). If you have a car max or other "we buy your car" place around go get a quote. Anything they give you over buyout (with no tax) is money in your pocket. Ditto if you "trade" in in somewhere and they allow more than $16k on it - you have to be careful they don't hose you on the new vehicle or trade, but it would work the same way. Bargain a low price on the new ride and then anything over $16k they allow on trade is down payment for you.
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