Lease then Buyout - Contract Explanation

[namja]

hmmmm got a weird question

so i looked at my lease buyout amount originally it was 21,885 like 1-2 months ago

finally have the funds to finish it off and now its 22,205?

does it go up every month?

did you have a late payment?

another possibility is that they excluded sales tax before but you never know until you get the lease buyout package

 

[thomas5986]

don’t know.

but doing the buyout part... you do not need to payoff in full. Can get a traditional car loan through a bank or a credit union

Ok AYip31, I've got a twist for you from our conversation on here yesterday. I spoke with the Kia finance lady just now discussing the buyout option and she said "why" would I do that now so soon. I said well I don't want my $7300 lease cash to diminish the longer I go through my 24 lease months and she said that was not true. The lease cash I received does not go away and that is bad information. The rebate doesn't some how reduce. Thoughts?

 

[GPhenom]

I don't think the lease cash goes away per se, but the interest you pay each month as part of the lease eats into the savings.

 

[AYip31]

I don't think the lease cash goes away per se, but the interest you pay each month as part of the lease eats into the savings.

Thomas5986 this

 

[thomas5986]

I don't think the lease cash goes away per se, but the interest you pay each month as part of the lease eats into the savings.

I can follow you on that. so my next observation/talking point would be her making the point that currently I am paying 2.95% through KMF and the best new car rate I could find was 2.99 so essentially at the end of the 24 month lease I would have paid $19322 with a residual of 30394 which equals 49716. However, if I go with the credit union for the loan I will be paying 846/mon instead of 805 with Kia and the total 60 month loan would equal 50760. Does this make any sense?

 

[GPhenom]

I can follow you on that. so my next observation/talking point would be her making the point that currently I am paying 2.95% through KMF and the best new car rate I could find was 2.99 so essentially at the end of the 24 month lease I would have paid $19322 with a residual of 30394 which equals 49716. However, if I go with the credit union for the loan I will be paying 846/mon instead of 805 with Kia and the total 60 month loan would equal 50760. Does this make any sense?

Makes sense. Now would you buy it out with cash or take out another loan at that point? Loans on used cars tend to be at higher interest rates than new ones. I've never done a lease buyout, so I'm asking for informational reasons. Definitely am no expert.

 

[MerlintheMad]

Makes sense. Now would you buy it out with cash or take out another loan at that point? Loans on used cars tend to be at higher interest rates than new ones. I've never done a lease buyout, so I'm asking for informational reasons. Definitely am no expert.

If you've got cash, it makes NO sense to do the buyout by taking out a loan. Any interest rate for a loan has to be subtracted from the lease rent (interest) to come up with the actual amount that you save by doing a buyout.

 

[thomas5986]

Makes sense. Now would you buy it out with cash or take out another loan at that point? Loans on used cars tend to be at higher interest rates than new ones. I've never done a lease buyout, so I'm asking for informational reasons. Definitely am no expert.

I would take out a loan and it wouldn't be a used loan, its a 2021 so I can get a new car loan on it, however, it doesn't really matter because like I stated the interest rate I could get still isn't lower than what KMF has me at.

 

[thomas5986]

If you've got cash, it makes NO sense to do the buyout by taking out a loan. Any interest rate for a loan has to be subtracted from the lease rent (interest) to come up with the actual amount that you save by doing a buyout.

Right, I don't have the cash to do the buyout so if I'm thinking correctly I should just stay with KMF and let the 2 year term run its course (keeping free GAP insurance from KIA) while paying less of a % rate or at least wait until one of my credit unions offers a deal throughout the year of a "special interest rate" offer. I still cant really comprehend how some of the members here think the lease cash is reduced if we stay in the lease. Can anyone explain it that truly knows 100%?

 

[MerlintheMad]

Right, I don't have the cash to do the buyout so if I'm thinking correctly I should just stay with KMF and let the 2 year term run its course (keeping free GAP insurance from KIA) while paying less of a % rate or at least wait until one of my credit unions offers a deal throughout the year of a "special interest rate" offer. I still cant really comprehend how some of the members here think the lease cash is reduced if we stay in the lease. Can anyone explain it that truly knows 100%?

In my case, if I finished out the three year lease, the lease rent would total well over $5K (the privilege of leasing, as the finance manager put it ). As the lease incentive was only $5,900 at that place and time, you can see how that gets whittled away to practically nothing by lease end.

 

[thomas5986]

In my case, if I finished out the three year lease, the lease rent would total well over $5K (the privilege of leasing, as the finance manager put it ). As the lease incentive was only $5,900 at that place and time, you can see how that gets whittled away to practically nothing by lease end.

I understand what your saying by the lease rent would add up to 5K but could you give me the numbers to get to the 5k? I ask because I thought I knew what I was talking about yesterday when I tried to explain it to the lady, for her to make sense of it and I couldn't. If I understand my agreement I am paying $108/month of my $805/month in "rent" but given the interest rate comparison supposedly even though its .05% difference, if you do the math over the term it still comes up to me paying less in the 2 year lease + the residual amount to be financed.

 

[adam1991]

If you've got cash, it makes NO sense to do the buyout by taking out a loan.

especially in states that collect sales tax on the monthly payments up front as a total, instead of collecting sales tax monthly with every payment. Then you pay sales tax on the rent PLUS on the lease buyout.

So a two year lease has $9700 cash on the hood. But payments are, what--$1200/month? I dunno, just guessing. But at that rate, such a state would collect sales tax on the $28800 of payments, and would do so at lease inception. At 7.5%, that's $2160 you'll pay right up front. That eats into that $9700 cash on the hood, making it really $7540. And then of course you pay sales tax on the buyout; it's still at that $50K range, so there's another $3750.

In such a state, then, one might pay $5910 total in sales tax for the privilege of entering into a 2 year lease, getting the $9700 cash on the hood, then buying the lease out. So that $9700 is really $3790 cash on the hood after everything is calculated. How else might you find $3790 in the deal? Or can you find MORE than $3790?

But what about the 13% return I'm getting on my investments? It would be butt stupid to put $50K out of pocket cash down to buy a Huyndai/Kia of any kind; that becomes a minus 13% or more return.

You've got to REALLY want that Stinger experience to spend that kind of money. There must be a cheaper way to get it than simply buying the car outright with pocket cash. Lease or loan. A lease gives you a guarantee on how much you'll spend for the car during the term. A loan puts the residual value and selling it when you're done with it on you to manage as an open ended item, and is a complete unknown. But either way, your $50K cash can sit in those 13% investments.

Pay to play. Get the experience as inexpensively as you can. I would say literal cash out of pocket purchase is the worst way.

 

[MerlintheMad]

Pay to play. Get the experience as inexpensively as you can. I would say literal cash out of pocket purchase is the worst way.

That's an angle I wasn't remembering. But if you have cash it might be a windfall or nest egg kind of thing, not invested at all; so paying cash could be the best way to go. (I doubt that any normal investment of c. $50K would be returning 13% without hazard.)

 

[MerlintheMad]

I understand what your saying by the lease rent would add up to 5K but could you give me the numbers to get to the 5k? I ask because I thought I knew what I was talking about yesterday when I tried to explain it to the lady, for her to make sense of it and I couldn't. If I understand my agreement I am paying $108/month of my $805/month in "rent" but given the interest rate comparison supposedly even though its .05% difference, if you do the math over the term it still comes up to me paying less in the 2 year lease + the residual amount to be financed.

I'm rapidly getting out of my depth here. I've done exactly ONE lease in my life; and I bought that one out after three months.

My understanding is that buyout is only an advantage if you can do it as immediately as possible, free and clear. Any loan to get the money to do the buyout is taking away from the money saved because of interest paid on the loan. If you've worked that out so that the buyout with a loan saves you money in the end, and that savings is enough to warrant the hassle of going through this, then that is a go ahead. If the savings is puny (the headache of buyout is not) then only you can decide. I've already decided to never lease again.

 

[adam1991]

But if you have cash it might be a windfall or nest egg kind of thing, not invested at all; so paying cash could be the best way to go.

Oh, yeah, if it was free money you didn't have and were never counting on, absolutely.

(I doubt that any normal investment of c. $50K would be returning 13% without hazard.)

I think you'd be surprised. Yes, it's an aggressive structure--but in index funds. 13% is reality.

Even if you pulled it out after a year and put it into a 4% return product, you're way ahead of the 2.5% loan.

 

[thomas5986]

especially in states that collect sales tax on the monthly payments up front as a total, instead of collecting sales tax monthly with every payment. Then you pay sales tax on the rent PLUS on the lease buyout.

So a two year lease has $9700 cash on the hood. But payments are, what--$1200/month? I dunno, just guessing. But at that rate, such a state would collect sales tax on the $28800 of payments, and would do so at lease inception. At 7.5%, that's $2160 you'll pay right up front. That eats into that $9700 cash on the hood, making it really $7540. And then of course you pay sales tax on the buyout; it's still at that $50K range, so there's another $3750.

In such a state, then, one might pay $5910 total in sales tax for the privilege of entering into a 2 year lease, getting the $9700 cash on the hood, then buying the lease out. So that $9700 is really $3790 cash on the hood after everything is calculated. How else might you find $3790 in the deal? Or can you find MORE than $3790?

But what about the 13% return I'm getting on my investments? It would be butt stupid to put $50K out of pocket cash down to buy a Huyndai/Kia of any kind; that becomes a minus 13% or more return.

You've got to REALLY want that Stinger experience to spend that kind of money. There must be a cheaper way to get it than simply buying the car outright with pocket cash. Lease or loan. A lease gives you a guarantee on how much you'll spend for the car during the term. A loan puts the residual value and selling it when you're done with it on you to manage as an open ended item, and is a complete unknown. But either way, your $50K cash can sit in those 13% investments.

Pay to play. Get the experience as inexpensively as you can. I would say literal cash out of pocket purchase is the worst way.

Luckily in MD from what I've been told I will not pay tax on the money twice since its not changing buyer names.

 

[adam1991]

If you're not paying sales tax on the entire amount of the asset--if you're only paying sales tax on the monthly "rent"--then the state will want the rest of it at some point.

So, maybe in MD you're paying the sales tax on the entire cap cost?

 

[thomas5986]

If you're not paying sales tax on the entire amount of the asset--if you're only paying sales tax on the monthly "rent"--then the state will want the rest of it at some point.

So, maybe in MD you're paying the sales tax on the entire cap cost?

This is something I'll have to ask my sales lady directly because I tend to get these lease terms confused and sound like a jacka_s when I try to ask her questions!

 

[adam1991]

So I'm probably correct:

Maryland tax Sale price?

Hey Hackers, I am considering leasing a vehicle instead of buying it for the 1st time. And I am being told that for Maryland, I have to pay the whole car price, in tax, IE $22,000 price after negotiations x 6% = $1320. With a 24 month lease, that increases the monthly by $55 !!! Is that...

forum.leasehackr.com

Maryland steals the entire sales tax from you up front, based on the cap cost. So, right up front they got all the money they wanted. That's why, when you do a paperwork change and buyout the lease but keep the same ownership, they're not making you pay any more sales tax. You've already paid it.

But if you don't buy it out, this is a ripoff. You're paying sales tax for a product you're not using. You're using 45% of the car and then turning it in, but you're paying sales tax based on 100% of the car.

Imagine paying sales tax for all the menu items in a restaurant you chose not to order.

 

[thomas5986]

So I'm probably correct:

Maryland tax Sale price?

Hey Hackers, I am considering leasing a vehicle instead of buying it for the 1st time. And I am being told that for Maryland, I have to pay the whole car price, in tax, IE $22,000 price after negotiations x 6% = $1320. With a 24 month lease, that increases the monthly by $55 !!! Is that...

forum.leasehackr.com

Maryland steals the entire sales tax from you up front, based on the cap cost. So, right up front they got all the money they wanted. That's why, when you do a paperwork change and buyout the lease but keep the same ownership, they're not making you pay any more sales tax. You've already paid it.

But if you don't buy it out, this is a ripoff. You're paying sales tax for a product you're not using. You're using 45% of the car and then turning it in, but you're paying sales tax based on 100% of the car.

Imagine paying sales tax for all the menu items in a restaurant you chose not to order.

I'd say thats a rip off. MD is a criminal state in everyway possible when it comes to taxes and fees. Someone else buys it and they get to tax again on a portion of the same product. Criminal.