High payment car lease...anything you can do?

[Octavious]

I'll have to find the article, but it explained how it worked. It's really some crazy ass bs. I'm not trying to buy out my loan, just providing an example as I can easily look it up. It's totally f'd up how leases work if you are trying to get out of one.

Just for reference as I just looked it up:

Original Financed Amount:
27,683.81

Total Payments Made 18
Remaining Payments 18

So exactly halfway through the lease:
Buyout price as of today = 23971.78
Residual (The price at the end) is like 16 - 17 (I'd have to look it up and I'm lazy)

There's nothing wrong with my lease it's just how it works. I'll track down why when I get a chance.
Total Payments So Far 5,904

FYI this is at like 2.04 % interest. The way they apply payments to a lease is really bizarre and f'd up. I knew this going in, but just warning people about what happens if you want to get out of a lease.

*EDIT*

This might clarify it a bit essentially they pay finance charges first and not the balance. If I gave you the payout again in 6 months it would have dropped like a rock as I've payed off all the finance portion by now.

Spoiler:

2. Car Lease Early Buyout
If you decide that you want to purchase your vehicle before normal lease-end, this is considered an early lease buyout. It’s more complicated than a lease-end buyout because of the way that the amount of the payoff is determined. The price is a combination of the lease-end residual value, as stated in your lease contract, added to the amount you still owe on your lease.



The amount you still owe on your lease may be considerably higher than you might think. It’s because your low monthly lease payments have not kept up with the rapid depreciation in your vehicle’s value. It’s also because your lease company recalculates your lease balance in a different way than originally calculated, resulting in crediting most of your past payments to finance charges rather than paying down the lease.

In some cases, it may be cheaper to wait and buy out your lease at lease-end than to purchase early. Some people make the mistake of buying out a lease early when they are over-mileage, thinking it’s a good way to avoid impending excessive mileage charges. However, waiting until lease-end to purchase accomplishes the same thing. Regardless of when you purchase, you avoid mileage charges.

[Kraken]

This thread makes me wonder anew why people lease. Used to be you leased if you were the type who wants a new car every few years and you bought if you drive a car until the wheels fall off. Being in the latter camp I never understood the former.

[Rip]

This thread makes me wonder anew why people lease. Used to be you leased if you were the type who wants a new car every few years and you bought if you drive a car until the wheels fall off. Being in the latter camp I never understood the former.

My goodness, we are in the same camp.

There is one place/time it makes perfect sense.

When it is a company expense.

[Drazzil]

This thread makes me wonder anew why people lease. Used to be you leased if you were the type who wants a new car every few years and you bought if you drive a car until the wheels fall off. Being in the latter camp I never understood the former.

My goodness, we are in the same camp.

There is one place/time it makes perfect sense.

When it is a company expense.

I am trying to do the same with my Toyota Corolla.

[RunningMn9]

This thread makes me wonder anew why people lease. Used to be you leased if you were the type who wants a new car every few years and you bought if you drive a car until the wheels fall off. Being in the latter camp I never understood the former.

That was explained earlier. For the same vehicle, a lease payment can be significantly cheaper than a purchase payment. And leasing effectively drops you maintenance charge to zero. So even if you drive the car until the wheels fall off, you have to calculate that you've lost the entire purchase price of the car, plus all of the maintenance costs while waiting for it to fall apart. I did the math at one point, and the break even point is a lot farther out than you think.

Octavious - you show the amount financed as $27k, and the residual as $16k. We are talking about a $43k vehicle? If th purchase price was $27k and the residual is $16k, than the amount financed should be $11000. And at 2.04% on $11k really isn't that much. That's less than $19 per month. I'll check out the numbers from my last lease to see if I can make sense of it.

[stessier]

What does buying out the lease mean? Do you get to keep the car? Because if so, then Octavious' numbers make sense. The residual is 17k and he's paid ~6k with ~6k left to go. So 17k + 6K = 23k buyout. If you don't get to keep the car, I got nothing.

[Octavious]

This thread makes me wonder anew why people lease. Used to be you leased if you were the type who wants a new car every few years and you bought if you drive a car until the wheels fall off. Being in the latter camp I never understood the former.

That was explained earlier. For the same vehicle, a lease payment can be significantly cheaper than a purchase payment. And leasing effectively drops you maintenance charge to zero. So even if you drive the car until the wheels fall off, you have to calculate that you've lost the entire purchase price of the car, plus all of the maintenance costs while waiting for it to fall apart. I did the math at one point, and the break even point is a lot farther out than you think.

Octavious - you show the amount financed as $27k, and the residual as $16k. We are talking about a $43k vehicle? If th purchase price was $27k and the residual is $16k, than the amount financed should be $11000. And at 2.04% on $11k really isn't that much. That's less than $19 per month. I'll check out the numbers from my last lease to see if I can make sense of it.

I'd have to go back to my paperwork, but I know that when I looked on the Honda site on the first day the buyout was almost 30K. Why? Because they do some crazy voodoo with buyouts on leases. The purchase price off the top of my head was 26,400 + random fees that I rolled into it which comes to the 27K. It all matches out when I check it using the Edmunds calculator so there's nothing wrong it's just that they are jerks on how they do buyouts on leases. They don't want you to do it and it doesn't work as you would expect it. So doing the math to figure it out will just make you want to bash your head in.

The biggest mistake I see people making with leases is that they don't think they can negotiate the price. One dealership tried to sell me that and I walked out. It works the same as buying a car. You try to get the lowest price possible and then your lease payment is lower. Your payment will also be lower if the residual is higher. Which is why I keep on ending up with Hondas and not Fords.


From Edmunds based off what I remember off the top of my head:
27,683.81
MF .00032 = 1.3% so it was lower than I remembered.
Residual = 17,500
Payments = 329 for 15,000 Miles a year 3 years

If I had bought instead the payments would have been around 500 bucks a month for 60 months with no down payment. The whole buyout part is a bizarre scheme to screw people that want to get out early. Shrug...

[Octavious]

What does buying out the lease mean? Do you get to keep the car? Because if so, then Octavious' numbers make sense. The residual is 17k and he's paid ~6k with ~6k left to go. So 17k + 6K = 23k buyout. If you don't get to keep the car, I got nothing.

Yes, if you buyout the car it's yours. It would totally suck if it wasn't. If someone intends to keep the car they get a loan and pay off the car and then it would be just like any other car. You make the payments and it's yours at the end. Or you're professor moneybags and have 20K laying around and then no payments.

[RunningMn9]

I'd have to go back to my paperwork, but I know that when I looked on the Honda site on the first day the buyout was almost 30K. Why? Because they do some crazy voodoo with buyouts on leases. The purchase price off the top of my head was 26,400 + random fees that I rolled into it which comes to the 27K. It all matches out when I check it using the Edmunds calculator so there's nothing wrong it's just that they are jerks on how they do buyouts on leases. They don't want you to do it and it doesn't work as you would expect it. So doing the math to figure it out will just make you want to bash your head in.

I thought more about this. A couple of things - you started with the amount financed at $27k, but that may have just been bad choice of words on your part. With a lease, you don't finance the entire purchase price of the car. You finance the purchase price of the car + sales tax - residual (edit to add: this was wrong as I note later - but I left it here to shame me into understanding that I don't know everything ). So if the purchase price is $26,400, you add $1848 in sales tax (thanks Obama!). Then if you had other fees rolled in, you add those on top. Then subtract out the residual, and that's how much you actually financed. Let's say the answer is $11,625 for easy rounding.

That's 36 payments of $329 for the lease. Think about that for a second. You financed $11,625 over three years, and it will cost you a grand total of $219 in interest (36 x $329). That's the point I was trying to illustrate - the cost of financing a lease is trivial. You are financing a fraction of the cost of the car over a shorter period of time.

So given all of that, I was trying to figure out your dilemma. And here's as near as I can figure out....which stessier already answered. To payoff the car, you have to payoff the remaining balance on the lease (which you can see above will generally be remaining payments * monthly payment, less gap insurance or other non-related things which you will no longer owe). Since there isn't much interest associated with the loan, you basically have to pay it all off less like $180 or something.

The result is that early in the lease, the payoff will be for more than the car is worth, since the value of the car depreciates faster than you are paying off the loan. You won't really ever catch up until lease termination if the residual was calculated correctly.

Short answer: Your situation now makes sense to me.

Edit: To clarify, you are paying interest on the entire purchase price of the vehicle, not on the "price + sales tax - residual" amount. But even so, at 1.3% interest, it's not a crushing amount.

[Octavious]

Yup see simple? No wonder why dealerships can just totally rip people off and they don't realize it.

[Kasey Chang]

The whole point of leasing a car is you only finance the amount the car depreciated. I.e. you bought it for X, at end of lease the car is worth Y. So you finance X-Y+fees for whatever the terms was. It's accepted that interest on lease will be higher than a loan, but the net monthly bill would be lower, and the terms are shorter so you get a "new" car more often than if you financed the car.

If the car's worth 30K new, 10K when you return it in 3 years, you're financing 20K, not full 30K price.

You can negotiate for another loan to buy out the car (paying the residual value) at the end of the lease, but that's a whole new ballgame together.

As others have remarked, the payment makes no sense. Toyota doesn't charge that much on lease. Usually with promos on all the time TMCC charges sub 5% even on leases, depending on credit of course. The only thing that makes sense is she got some outside loan at usurious rates, THEN have the loan of her previous car (still not paid off) rolled into this lease, which is still a loan (i.e. if she still owed 10K on the previous car...)

Let's assume that previous car was still "net" 10K underwater. I.e. 13K on the loan left, car's worth 3K trade in. Dealer take it in, and adds 13K to the lease, then applies the 3K to capital reduction / down payment so the lease total gets a 10K increase.

Without knowing the exact details (which car got traded in, what condition, and exact terms of the lease), I'd say your DIL got screwed over not just once, but multiple times. The salespeople were probably still telling stories about how gullible she was.

How do she get out of it? I honestly don't know, as it seriously depends on whether the lease amount was padded with a rolled-in amount or not. Frankly, I can probably lease a MB or Lexus with $450 a month payment. There's NO WAY anybody will be willing to pay $450 a month for a RAV4 on just a lease when a NEW 2016 RAV4 (depending on trim and such) can be leased for under $300. (subject to mileage, blah blah blah)

At this point, I'd consider hiring a lawyer to at least look over how she got screwed and see if a "threat to sue" can get her out of the lease, maybe with a penalty payment. There are a couple lawyers who specialize in consumer / auto cases. I think one hangs out over on Jalopnik.com quite often.

[RunningMn9]

The whole point of leasing a car is you only finance the amount the car depreciated. I.e. you bought it for X, at end of lease the car is worth Y. So you finance X-Y+fees for whatever the terms was.

That's what I thought. Then I read things that said otherwise. According to the latest thing that I read (which makes sense to me) is that you pay interest on the full purchase price of the car (with taxes and fees) - because the financing company basically takes out a loan to buy the car from the dealer. You are paying the financing charge on that loan (plus some extra so they make a profit).

That makes sense if you think about it. Why would Toyota Financial fork over $30K to the dealer to buy the car, and then only charge you interest on the amount that the car will depreciate over the next three years? The answer is, they wouldn't. You pay interest on the full $30K that they give to the dealer. According to what I read anyway.

[geezer]

The whole point of leasing a car is you only finance the amount the car depreciated. I.e. you bought it for X, at end of lease the car is worth Y. So you finance X-Y+fees for whatever the terms was.

That's what I thought. Then I read things that said otherwise. According to the latest thing that I read (which makes sense to me) is that you pay interest on the full purchase price of the car (with taxes and fees) - because the financing company basically takes out a loan to buy the car from the dealer. You are paying the financing charge on that loan (plus some extra so they make a profit).

That makes sense if you think about it. Why would Toyota Financial fork over $30K to the dealer to buy the car, and then only charge you interest on the amount that the car will depreciate over the next three years? The answer is, they wouldn't. You pay interest on the full $30K that they give to the dealer. According to what I read anyway.

This is correct. You also generally pay sales tax on the full sale price of the car. In some states, mine (TX) being one of them, you pay sales tax AGAIN if you buy the car out (because technically you're transferring title from one owner - the leasing company - to another, you.).

[RunningMn9]

This is correct. You also generally pay sales tax on the full sale price of the car. In some states, mine (TX) being one of them, you pay sales tax AGAIN if you buy the car out (because technically you're transferring title from one owner - the leasing company - to another, you.).

That also makes sense, although it would definitely irritate me.

[Kasey Chang]

[ According to the latest thing that I read (which makes sense to me) is that you pay interest on the full purchase price of the car (with taxes and fees) - because the financing company basically takes out a loan to buy the car from the dealer. You are paying the financing charge on that loan (plus some extra so they make a profit).

Nope, that makes no sense, because at end of lease they GET THE CAR BACK when you're done with it. They can sell the car (now off-lease) for the price, and there's all sorts of penalties if you didn't upkeep the car.

The monthly payments are lower on a lease because they get the car back (esp. when it's still worth something), when compared to a loan of same terms.

If the amounts are nearly the same, the length is different. Apples and oranges (and grapefruit).

[RunningMn9]

Nope, that makes no sense.

It makes no sense because you argued before you read what I said.

The principle portion of your lease payment covers the depreciation of the vehicle over the term of the lease (total purchase price - residual). That's the part where you are correct. However, the finance charge that you are paying is not based on the depreciation of the vehicle. The finance charge (i.e. interest) is based on the total purchase price of the car. Because otherwise no finance company on earth would offer a lease. The only way they are going to tie up the total purchase price of the car for three years is if you spend those three years paying interest on the total purchase price of the car (and then pay the depreciation).

[Smoove_B]

I think what I've learned from this is that if Xmann wants to arrange for a bunch of us from OO to accompany him and his step daughter to meet with the car dealership, I think after about 5 minutes worth of discussion they'll let her out of the lease.

On topic: I've never understood the accounting behind leasing a car but it always seemed like a bad deal for any situation I was ever in. Either the money was too much or the number of miles I could drive before absurd penalties kicked in always forced me away. I wish I had some specific advice that didn't involve an accidental firebomb, but best of luck.

[naednek]

The whole point of leasing a car is you only finance the amount the car depreciated. I.e. you bought it for X, at end of lease the car is worth Y. So you finance X-Y+fees for whatever the terms was.

That's what I thought. Then I read things that said otherwise. According to the latest thing that I read (which makes sense to me) is that you pay interest on the full purchase price of the car (with taxes and fees) - because the financing company basically takes out a loan to buy the car from the dealer. You are paying the financing charge on that loan (plus some extra so they make a profit).

That makes sense if you think about it. Why would Toyota Financial fork over $30K to the dealer to buy the car, and then only charge you interest on the amount that the car will depreciate over the next three years? The answer is, they wouldn't. You pay interest on the full $30K that they give to the dealer. According to what I read anyway.

This is correct. You also generally pay sales tax on the full sale price of the car. In some states, mine (TX) being one of them, you pay sales tax AGAIN if you buy the car out (because technically you're transferring title from one owner - the leasing company - to another, you.).

That wasn't the case on my previous lease... We paid sales tax on the leased portion. Otherwise it makes no sense to lease. You are making payments for the time you have the car.

[RunningMn9]

That wasn't the case on my previous lease... We paid sales tax on the leased portion. Otherwise it makes no sense to lease. You are making payments for the time you have the car.

I checked, and this is true in NJ (since it is sales tax, in theory it can vary by state). As a consumer, I will pay sales tax on the depreciation portion of my monthly lease payment (and I will pay that sales tax per month as part of my payment).

However, when you negotiate the purchase price of the vehicle and the lease company buys the vehicle - I presume that they have to pay sales tax on that transaction. And I'm guessing that there is a 0% chance that they are going to just eat that cost. Even if they only have to pay sales tax on the residual value of the vehicle (since you are paying it on the deprecated value) - that is going to be part of the money factor.

Use Octavious' example. With a purchase price of $27k, NJ needs to get $1890 in sales tax. If he is only paying $700 of it - who is paying the other $1190? How could the finance company pay that, and then only charge him an effective interest rate of 1.3%?

[Xmann]

I'll have the papers to look at tomorrow and fill everyone in on.

[Zarathud]

You also add in fees for middlemen and "risk" that you don't pay or total/wreck the car. Those added factors jack up lease costs -- but are to your benefit if you are harder than expected on the car. If you have shit credit and are young, those costs can play a factor in getting screwed.