Need help on a car lease option

[Texas Proud]

A bit long but I want to give all info.. but I would like to know if this thinking is right and what pitfalls might arise...

I am looking at buying an RX350h... a nice hybrid... but they also have a RX450h+ which is a plug in hybrid... the problem is that it cost at least $9,000 more and you can not make that money up...

But, Lexus has a $7,500 credit if you lease the RX450h+... this is where it gets interesting...

I saw a post on another forum where they said they got the lease, had the $7,500 credit and then paid off the lease early so the difference in the car was around $2,000...

My question is does a lease act like a loan? IOW, if I pay it off in a couple of months do I only pay the 'principal' amount or do I have to pay all lease payments in full plus the residual value on the contract?

My seat of the pants guess on the cost of money for a lease is around 9%.. so not cheap money... I could just pay the monthly payments and in the end pay the residual but that cost about $10K more in total... which is 'interest'...

 

[freedomatlast]

Depends on how the contract is written.

 

[Aerides]

I've never heard of paying off a lease early and saving money - unless that came with giving the car back early (ie, the dealer gets a "younger" car with a better resale value).

Also of course check the mileage limits, they are often lower in the most attractive lease agreements.

 

[DJRR]

I am looking at buying an RX350h... a nice hybrid... but they also have a RX450h+ which is a plug in hybrid... the problem is that it cost at least $9,000 more and you can not make that money up...

But, Lexus has a $7,500 credit if you lease the RX450h+... this is where it gets interesting...

I saw a post on another forum where they said they got the lease, had the $7,500 credit and then paid off the lease early so the difference in the car was around $2,000...

My question is does a lease act like a loan? IOW, if I pay it off in a couple of months do I only pay the 'principal' amount or do I have to pay all lease payments in full plus the residual value on the contract?

Well $9,000 - $7,500 = $1,500, so paying an extra $500 seems in the ballpark.

Leases do not typically act like a loan since the residual value is only fixed at termination. If you terminate early you are exposed to depreciation, which tends to be higher earlier.

To compare the same car look at the total payments financed by a lender vs. the total payments of the lease plus the terminal value financed at your lending rate for the remainder of the term, ie 5 years at 7% vs. 3 years lease payment + residual value for 2 years at 7%. This will tell you if the lease option is better than the ownership option for the same vehicle because of the incentive. When I leased my daughters car it was $800 cheaper less a $300 turn in charge, so $500 less to take the lease/incentive with an option to turn in the car in 3 years if the value fell dramatically.

Comparing to another car is not really relevant. You should get the best deal on the car you actually want.

 

[Qs Laptop]

A bit long but I want to give all info.. but I would like to know if this thinking is right and what pitfalls might arise...

I am looking at buying an RX350h... a nice hybrid... but they also have a RX450h+ which is a plug in hybrid... the problem is that it cost at least $9,000 more and you can not make that money up...

But, Lexus has a $7,500 credit if you lease the RX450h+... this is where it gets interesting...

I saw a post on another forum where they said they got the lease, had the $7,500 credit and then paid off the lease early so the difference in the car was around $2,000...

My question is does a lease act like a loan? IOW, if I pay it off in a couple of months do I only pay the 'principal' amount or do I have to pay all lease payments in full plus the residual value on the contract?

Essentially, a lease acts like a loan. You are taking out a loan to pay off depreciation. You are making monthly payments on the calculated depreciation the vehicle will "suffer" over the term of the lease.

It's unlikely the lease contract will allow you to pay off the loan early, and even if it did you probably wouldn't get the same price you would get at lease end (the price at lease end is the residual value.) It might be possible to buyout the lease "early", but early likely means within 90 days of lease end, not 3 months into a 36 month lease.

When the residual value is calculated it does not factor any credits used to reduce the capitalized cost of the lease. The residual value is the original MSRP minus the depreciation the manufacturer and/or the bank determines the vehicle will accrue. In other words if the MSRP of the vehicle is $75,000 and the lease credit is $7,500 the depreciation is calculated on the $75,000 and not $67,500.

I highly doubt the forum poster that said he was able to buy out the lease early and also doubt that the $7,500 credit was a factor in that buyout number (if it existed)

 

[DJRR]

I highly doubt the forum poster that said he was able to buy out the lease early and also doubt that the $7,500 credit was a factor in that buyout number (if it existed)

Many leases have an early termination clause, but it is usually prohibitive due to having a fee or an undetermined depreciation amount when you terminate that can be manipulated/based on an unfavorable index.

The $7,500 is definitely a factor in the total cost, but not the residual value buyout. Many OEMs provide an additional incentive to lease vs. finance. The incentive often makes it a total cheaper cost to lease vs. finance, but you have to do the math yourself. My guess is that such a large incentive makes the lease the better option in this case, unless they are really screwing you on the money factor.

 

[copyright1997reloaded]

Funny the timing on this! I was just yesterday at the home of a friend whose son did something like this. He was going to get the Hybrid but instead did the special lease deal with the $7500 and paid off the lease a couple weeks later. He said it was not done using residual value.

I don't have any more details, but it sounds like there is something going on here that people are taking advantage of to essentially get the PHEV at about/close to the price of the HEV.

 

[pb4uski]

I've never leased but suspect to get out early with the car that you would need to make the remaining lease payments plus the residual. Perhaps they might offer a discount for the time value of money but I can't imagine how it would be worthwhile.

 

[Texas Proud]

Funny the timing on this! I was just yesterday at the home of a friend whose son did something like this. He was going to get the Hybrid but instead did the special lease deal with the $7500 and paid off the lease a couple weeks later. He said it was not done using residual value.

I don't have any more details, but it sounds like there is something going on here that people are taking advantage of to essentially get the PHEV at about/close to the price of the HEV.

Yea, this is what I have read... by a few people... not just one..

I think they are paying off the capitalized cost which is basically the cost of the car with some lease fees... netting the $7500 discount...

I am trying to get with the finance guy... that will let me know for sure...

I have calculated that if I financed the car I would pay close to the same amount as the HEV... but it is a 9% loan...

If need be I will try and get a 2 year loan and pay it off then... save some money... there is more than one way to get what I want...

 

[TrvlBug]

Have you looked into the 1 pay lease option? Our 'best' Lexus ES350 Luxury (gas) options were to lease or pay cash. The lease option offered a $3,000 lease cash back where the cash price was MSRP...they wouldn't negotiate. The money factor equivalent for the regular lease was 5.25%, much higher than we expected or wanted and my research indicated that the 1 pay lease saving on the APR would be only 1% or so. To our surprise and delight, they offered 1.25% on a 1-pay lease and we grabbed it, getting the $3K lease cash.

The only downside I can think of is that we are the gap insurance, rather than the no cost gap insurance provided with a 'regular' lease. But then, as we've always paid cash for our cars, we always self insured for the depreciation anyway.

Plus, we got $2,500 more from Carvana on our trade in than their offer 10 days prior!

 

[Texas Proud]

I did get a one pay lease option... but the total cost was about $10K more than paying it off really early...

That is why I calculated an equivalent 9% or so money factor... it was not saving me anything...

Also why I am trying to get someone with real knowledge to school me on what is best... and if the people who have said they did this actually saved money... still trying to get with a finance guy at the dealer...

 

[Out of Steam]

I don't know if you're considering Federal tax credits related to the plug-in hybrid, but I wouldn't make any decision based on the availability of such credits, regardless of current rules. They could be repealed retroactively or simply not be paid.

 

[Texas Proud]

I don't know if you're considering Federal tax credits related to the plug-in hybrid, but I wouldn't make any decision based on the availability of such credits, regardless of current rules. They could be repealed retroactively or simply not be paid.

Car does not qualify for federal tax credits... I was told Lexus was doing this to move the cars... not sure why they did not do it for actual purchase...

 

[ky-mike]

Ask the dealer for a copy of the lease agreement. That should lay out your early payoff options.

 

[Zathras]

I don't know if you're considering Federal tax credits related to the plug-in hybrid, but I wouldn't make any decision based on the availability of such credits, regardless of current rules. They could be repealed retroactively or simply not be paid.

The rebates are now a POS rebate.

You get the credit at the time of sale.
To claw back these incentives the government would have to claw back from the dealers. Then the dealers would have to come after you.

I could certainly see them stopping the incentives at any time. I don’t see them clawing back the already paid incentives.

 

[Out of Steam]

I could certainly see them stopping the incentives at any time. I don’t see them clawing back the already paid incentives.

A lot of unprecedented things are happening right now, and I'm sure that dealers have structured their sales contracts against this possibility.

 

[segfault]

A friend on one of the auto forums I'm on was able to do exactly this with a VW lease because the lease incentives were so much better. He actually waited a couple of months before doing it, and contemplated just riding out the lease to the end, but got a payoff quote and bought the car outright (and ended up trading it before the original lease would have ended, lol).

 

[Texas Proud]

Well, an update... got the amount for lease payoff and it is nice... email the sales guy and will go in a couple of weeks to get the actual final number with taxes etc. I am going to pay them to take care of the paperwork which is about $250... not interested in waiting in line to get this done... I have been before and waited 2 hours... but also had one that was only 30 minutes...

The reason I am paying it off if that the interest rate is 9%!!!

I will update the totals when I get this done....