Lease then Buyout - Contract Explanation

[MerlintheMad]

That's the kind of ignorance that bugs me: I don't know how to get information that I trust. The dealerships and KIA Finance are not benefited by being transparent about any of this finagling. There appears to be sales tax on the lease and tax again each time that the title changes hands. Unbelievable as that looks!

 

[MerlintheMad]

Let me start over.

Everything I've said before this was from a misunderstanding. The residual value plus remaining payments does not equal the buyout figure: it equals the buyout figure plus what you will save if you exercise the buyout now.

The buyout figure includes sales tax, and avoids all rent charge, just as Mach_Tuck has said all along. I talked to KMF in detail this morning and it is all clear (not clear as mud).

I will use my lease as an example (if you do this the instant your lease kicks in you get full savings; we have paid two additional months on ours, so we lost a bit of money, but not enough to get worked up over).

When we bought the Stinger, the dealer knocked a full $2,995 off MSRP up front. That's where dickering comes in. Where we live, Stingers are evidently in good supply and moderate demand.

Next up is the savings to us at the end of the 36 months of the lease: this is $4,293.47 that we will have kept back by exercising the buyout now: 33 more months of Rent Charge and the $400 reclaiming fee charged by the dealer (I don't know if the "option to purchase" is included in the buyout or not, but it's $300; in my figuring I am assuming that it is not included).

When you add up everything it is $7,288.47, or a savings on today's MSRP of 16%.

If I look at it as paying myself over seven thousand dollars for the trouble of selling the car, I think I can gird up my loins and do it!

Maybe I won't want to: maybe the 2018 Stinger will still be an awesome machine compared to the Stinger in three years. But if I lust after "new and better", I can sell and get a new lease, and do this all over again and save even more by getting the dealer to whack off even more from the MSRP, and avoiding any payments beyond the initial one.

The differences in paying off the buyout: If you can pay cash you of course avoid interest on financing the buyout. That is what we can do, this time. The savings if you finance the buyout will be less because you have to pay interest (currently c. 1.69% at the credit union; that's really friendly right now). The reason people lease is because they get a lower monthly payment. There is also an added security/benefit, called "gap insurance". KIA covers that when you lease. It's the difference between what your insurance company coughs up and the replacement value of a totaled car. Say my insurance pays off $21K of the residual; KIA will come up with the other $3,160.56.

So, now I know the hard numbers. I still have to assess the pros and cons. I still have to decide. But I am leaning toward exercising the buyout right now. I thought that I had decided to do it, but I still feel a question about it. "I'm reviewing, the situation ..."

 

[Mach_Tuck]

Well, I don't understand any this of well enough to make a confident decision to buyout. So I am just going to stick with the rest of the lease and go with my original plan to make up my mind then to exercise the option to buy or not. If there are any repeat sales taxes applied because the title would be in my name, at least the taxes will be on a considerably lower amount than c. $41K. Have fun, all you all, deciding what to do!

Oh, and btw, my lease reads exactly the same as those quoted sections by Mach_Tuck. So, I am pretty sure that there is only one lease, and not different ones for different states.

the $40,954 INCLUDES tax if you are in fact in UT...read the note at the bottom of the buyout page. The residual plus remaining payments dont add up since the remaining payments have RENT included. Buying out early mitigates paying the RENT and that is your savings.

If your goal is to keep this car long term...buyout now provides the lowest cost to own. Obviously this assumes you can finance the buyout amount at a reasonable rate and term.

My GT2 RWD, when all said and done will have a total cost to purchase of $49K and change. This includes tax, title, fees, and finance charges from my CU. It also includes GAP from the CU. I bought out the lease before the first payment so essentially made ONE payment of RENT as part of the initial payment on the day i signed.

The number shown on the KMF buyout page is correct...regardless of what any rep tells you on the phone.


EDIT: I See that you posted a nice summary as i was writing this and now you understand how it works...glad you were able to clear it up and see the savings!!!!

 

[MerlintheMad]

Hi Mach, I posted right before you did.

Yes, I understand all of that now. Sorry for the ignorant blather earlier. Numbers and I are not comfortable.

We can pay cash. The reason why we leased to begin with was to get that lease rebate. Then we saw the rent charge ate most of that up, which was annoying. But we did it anyway because I was not ready to commit to being the owner of the title: I wanted to keep my options open.

The luxury of leasing has turned a mite sour, since it costs more in the end than buying out now: we did not know about buyout when we signed onto the lease. But it was only a couple of months ago, so little damage done. I do like the "gap insurance". And I like not having the full ownership of the car, but not to the tune of $4000 plus dollars! So, I am 99.9% sure that I am going to do this. I've already requested the funds to write the cheque.

 

[Mach_Tuck]

Hi Mach, I posted right before you did.

Yes, I understand all of that now. Sorry for the ignorant blather earlier. Numbers and I are not comfortable.

We can pay cash. The reason why we leased to begin with was to get that lease rebate. Then we saw the rent charge ate most of that up, which was annoying. But we did it anyway because I was not ready to commit to being the owner of the title: I wanted to keep my options open.

The luxury of leasing has turned a mite sour, since it costs more in the end than buying out now: we did not know about buyout when we signed onto the lease. But it was only a couple of months ago, so little damage done. I do like the "gap insurance". And I like not having the full ownership of the car, but not to the tune of $4000 plus dollars! So, I am 99.9% sure that I am going to do this. I've already requested the funds to write the cheque.

Excellent...i financed mine since money is cheap with the CU and they included GAP.

Again, i think it all comes down to "what is the long term goal?" for each person to answer. Mine is to keep this car for 8-10 years so buyout made sense. If you desire a new car in 3, then lease and pay the rent...that is the "cost" to have that luxury.

My lease cash was almost $7k so def worth a bit of hassle in my opinion!

 

[MerlintheMad]

Indeed. I like the idea of keeping this car for a lot longer than three years. But one of the factors that made choose leasing at first was the definite advance in technology, it's just so fast anymore. What will the 2021 Stinger have in addition to this already great car? So I didn't want to hobble myself and have to sell it if I regretted having financed it (or paid cash up front). What changed my mind was learning, finally, just how much money is used to complete a lease; and that switched my mindset from abhorring the idea of having to sell the car (the hassle and suspense of it all, etc.), to looking at it as paying myself to sell it. Instead of wanting the freedom of leasing, I switched to wanting to save thousands of dollars. That savings will make me feel "well paid". If were saving the earlier, much larger lease rebate (I saw that early this year it was $7,200!), it would even be sweeter. But I'm content to save over $4K. I've actually had good experiences selling my cars, so I ought to just do it and stop angsting over it.

Btw, I asked the KMF end-lease guy if KIA minded us doing this early or immediate buyout. And he said that of course they prefer if we see the lease through, they make more money that way. But they don't lose money on buyouts. Also, few people do a lease buyout: either because they don't know the advantages of doing it, or they don't want to hassle pursuing it; or they wouldn't get much if any benefit because the financing to buyout eats up too much of the saved lease rent: it isn't worth enough to bother. And there is the fact that many who lease cannot afford a new car any other way but leasing because financing has payments that are too high.

 

[Dmchristie1]

I purchased a red one with .09 financing on a preorder, paid retail and paying it off now. I read this forum after purchasing and used this info for my second stinger. There were a lot more fees (legit and not). and I found most of them during the lease process. I probably could have done better but when all was said and done I leased / purchased a yellow Stinger for the sticker price all in. Sales tax s 7%. So I essentially saved 7% off sticker.
Sticker is the Kia sticker price, not the dealer sticker that added 9500 yellow uplift, and appearance 1500 uplift and the hidden $950 “oh this is a stinger” market uplift I discovered while dissecting the numbers with the finance guy. They even tried rechargng a $699 dealer fee i had already paid three weeks ago when the leased it. They took it off the bill. It was a challenge and I could have done better but in the end my yellow one was less expensive than the red one. And the yellow one has a little metal “limited” logo. Woo hoo!

 

[MerlintheMad]

...I could have done better but in the end my yellow one was less expensive than the red one. And the yellow one has a little metal “limited” logo. Woo hoo!

Is the little Mrs Christie pleased? You are amazing. To go through all that work to dispose of one new car to get your wife another new car, because she liked your new car better.

 

[MarkyMark]

I purchased a red one with .09 financing on a preorder, paid retail and paying it off now. I read this forum after purchasing and used this info for my second stinger. There were a lot more fees (legit and not). and I found most of them during the lease process. I probably could have done better but when all was said and done I leased / purchased a yellow Stinger for the sticker price all in. Sales tax s 7%. So I essentially saved 7% off sticker.
Sticker is the Kia sticker price, not the dealer sticker that added 9500 yellow uplift, and appearance 1500 uplift and the hidden $950 “oh this is a stinger” market uplift I discovered while dissecting the numbers with the finance guy. They even tried rechargng a $699 dealer fee i had already paid three weeks ago when the leased it. They took it off the bill. It was a challenge and I could have done better but in the end my yellow one was less expensive than the red one. And the yellow one has a little metal “limited” logo. Woo hoo!

If only you actually liked the Stinger. ; )

 

[Mach_Tuck]

I purchased a red one with .09 financing on a preorder, paid retail and paying it off now. I read this forum after purchasing and used this info for my second stinger. There were a lot more fees (legit and not). and I found most of them during the lease process. I probably could have done better but when all was said and done I leased / purchased a yellow Stinger for the sticker price all in. Sales tax s 7%. So I essentially saved 7% off sticker.
Sticker is the Kia sticker price, not the dealer sticker that added 9500 yellow uplift, and appearance 1500 uplift and the hidden $950 “oh this is a stinger” market uplift I discovered while dissecting the numbers with the finance guy. They even tried rechargng a $699 dealer fee i had already paid three weeks ago when the leased it. They took it off the bill. It was a challenge and I could have done better but in the end my yellow one was less expensive than the red one. And the yellow one has a little metal “limited” logo. Woo hoo!

Sorry to break it to you...the "LIMITED" badge is plastic

 

[sym]

Ugh. This is going to turn into a nightmare. I can feel it.

I broke the whole lease out in Excel because the amounts seemed too high and it was confusing me. It's starting to make more sense. However, if I paid the sales tax for the lease out of pocket ($1688.34), should it still be included on the gross capitalized cost (and indirectly the adjusted capitalized cost) stated on the lease? Or was that a mistake on the dealer / KMF's part? I've attached a screenshot of my spreadsheet.

In addition to that, I bought the car in Indiana. I already paid the above amount in sales tax (to the dealer). This should have ended up in Ohio's hands:

An out of state dealer would charge and collect the tax on the basis as an in-state dealer, that is, on the entire amount the customer would pay over the term of the lease. The tax can be remitted to Ohio in one of two ways.

(1) If the out of state dealer makes frequent leases to Ohio customers, the dealer should register for an Ohio Seller’s Use Tax account on form UT-1000. The tax will be paid when filing sales tax return UST-1.

(2) If the dealer seldom leases a vehicle to Ohio residents, the dealer may submit a copy of the lease agreement, and a check for the tax made payable to Treasurer, State of Ohio. Send both to: Ohio Department of Taxation, Sales Tax Division, P.O. Box 530, Columbus, OH 43216-0530.

And Ohio does actually have a provision for the "double taxes" issue.

Early Buyout. For leases entered into after Feb. 1, 2002 where a lessee purchases the leased vehicle before the end of the lease, they are allowed credit for part of the sales tax, if the entire amount of sales tax was collected at the beginning of the lease. Part of the buyout purchase price could contain an amount for which tax has already been paid. The Department of Taxation will allow credit for part of the tax paid up front if the following conditions apply:

The sales contract between the leasing company and the lessee/buyer must list a separate amount that represents the present value of the remaining lease payments that are being paid by the lessee. This amount may not exceed the sum of the remaining lease payments. This is an amount for which tax has already been paid. The remainder of the sales contract would list other fees and charges, such as residual value and early termination fees. These items would be subject to the tax.

To determine the tax to be paid to the Clerk of Courts, calculate the entire tax due on the total purchase price of the vehicle, which includes the remaining lease payments, the residual value and any other fees associated with the purchase. Calculate the tax that was previously paid (at the rate in effect when lease began) on the present value of the remaining lease payments. Subtract the previously paid tax from the total tax. Submit the final tax due, less the allowable discount. A copy of the sales contract showing the separable charges must be submitted. If there is no separate line item that represents the present value of the remaining lease payments, no credit allowance will be given.

I really wish I could get a breakdown of the buyout offer with line items instead of a big number. I just feel like there might be a mistake somewhere in here.

 

[Mach_Tuck]

Ugh. This is going to turn into a nightmare. I can feel it.

I broke the whole lease out in Excel because the amounts seemed too high and it was confusing me. It's starting to make more sense. However, if I paid the sales tax for the lease out of pocket ($1688.34), should it still be included on the gross capitalized cost (and indirectly the adjusted capitalized cost) stated on the lease? Or was that a mistake on the dealer / KMF's part? I've attached a screenshot of my spreadsheet.

In addition to that, I bought the car in Indiana. I already paid the above amount in sales tax (to the dealer). This should have ended up in Ohio's hands:



And Ohio does actually have a provision for the "double taxes" issue.



I really wish I could get a breakdown of the buyout offer with line items instead of a big number. I just feel like there might be a mistake somewhere in here.

On mine, the only "tax" included in the Gross Cap cost was the tax ont he first monthly payment and the tax on the lease cash. Other than those two items, the tax for the lease was figured further down on the lease agreement. In AZ, a lease is only taxed on a monthly basis and NOT on the total amount. That being said, my buyout amount on the KMF site was spot on for the Adjusted Lease Balance + Tax. I cannot speak to how the tax paid up front factors into this. I believe KMF will provide a line by line breakdown if requested. For me, it was not needed since the tax in AZ is handled rather simply.

As i did the buyout prior to the first payment, my Adjusted Lease Balance was within a few dollars of the Adjusted Cap Cost. Add tax to this and that was my buyout amount

 

[Dmchristie1]

Sorry to break it to you...the "LIMITED" badge is plastic

I meant faux metal. Reduces weight increases gas mileage. Brilliant!

 

[sym]

On mine, the only "tax" included in the Gross Cap cost was the tax ont he first monthly payment and the tax on the lease cash. Other than those two items, the tax for the lease was figured further down on the lease agreement. In AZ, a lease is only taxed on a monthly basis and NOT on the total amount. That being said, my buyout amount on the KMF site was spot on for the Adjusted Lease Balance + Tax. I cannot speak to how the tax paid up front factors into this. I believe KMF will provide a line by line breakdown if requested. For me, it was not needed since the tax in AZ is handled rather simply.

As i did the buyout prior to the first payment, my Adjusted Lease Balance was within a few dollars of the Adjusted Cap Cost. Add tax to this and that was my buyout amount

Thanks for the assist. I reached out to KMF today for a detailed breakdown of the buyout price. I also reached out to my dealer to see if they can illuminate why the sales tax (which was paid in full at signing), was included in the gross capitalized cost of the car.

Hopefully one of these sources is able to help me. This seems like the appropriate amount if diligence when $1600 is on the line. I know KMF or my state tax agency won't return any of that money if I do end up overpaying.

 

[Ricky Bobbhy]

Does trading a car or putting money down affect the "adjusted lease balance" or does that just go towards lowering your monthly payments? In essence if you plan on lease, then buyout after 1 payment are you throwing away the money on the trade & money down if your adjusted lease buyout is still is 38-40k on a GT1 or GT2. Or would the adjusted lease buyout be 40( cap cost)-trade-cash down?

 

[Zac]

Ugh. This is going to turn into a nightmare. I can feel it.

I broke the whole lease out in Excel because the amounts seemed too high and it was confusing me. It's starting to make more sense. However, if I paid the sales tax for the lease out of pocket ($1688.34), should it still be included on the gross capitalized cost (and indirectly the adjusted capitalized cost) stated on the lease? Or was that a mistake on the dealer / KMF's part? I've attached a screenshot of my spreadsheet.

In addition to that, I bought the car in Indiana. I already paid the above amount in sales tax (to the dealer). This should have ended up in Ohio's hands:



And Ohio does actually have a provision for the "double taxes" issue.



I really wish I could get a breakdown of the buyout offer with line items instead of a big number. I just feel like there might be a mistake somewhere in here.

Something seems off with your math. Check your lease contract. The buyout should be much less with the 6500 rebate. Your buyout should be the adjusted capitalized cost minus any payments you've made excluding the rent charge. For you, the buyout should be 45767 minus 498 for any payments you've made.

I'm not sure how tax works in your state, but if you did a buyout you'd hopefully only owe tax on the residual amount, but I can't say for sure...your state could suck.

Hope this helps.

 

[Zac]

Does trading a car or putting money down affect the "adjusted lease balance" or does that just go towards lowering your monthly payments? In essence if you plan on lease, then buyout after 1 payment are you throwing away the money on the trade & money down if your adjusted lease buyout is still is 38-40k on a GT1 or GT2. Or would the adjusted lease buyout be 40( cap cost)-trade-cash down?

Money down would be moot, and wouldn't matter if you did a buyout, because it wouldn't change overall tax. It may reduce the payment, but it's all the same in the end for the overall cost. For the trade, it depends on your state. The trade should lower the initial taxes and count the same as a purchase. If it does, the lease buyout is way better bc you get the lease cash.

Get that Stinger! They rock.

 

[Mach_Tuck]

@Zac is correct on both accounts here. Very well said. Tax varies per state so know the rate and know what's paid when.

 

[sym]

Something seems off with your math. Check your lease contract. The buyout should be much less with the 6500 rebate. Your buyout should be the adjusted capitalized cost minus any payments you've made excluding the rent charge. For you, the buyout should be 45767 minus 498 for any payments you've made.

I'm not sure how tax works in your state, but if you did a buyout you'd hopefully only owe tax on the residual amount, but I can't say for sure...your state could suck.

Hope this helps.

Thank you. The spreadsheet I posted actually had none of my math in it, I just plugged in the numbers on the lease agreement so I could work with them more easily.

I think there's two things going on here:

1. When I bought the car from the dealer I paid ~$2300. First payment and then $1688 in sales tax. Yet, on the lease agreement, the sales / use tax is included as a line item (the exact $1688 I already paid out of pocket) in the itemized capital cost, which minus the lease cash is the $45,767 (adjusted capital cost) shown on my spreadsheet. My dealer and KMF have been unable to explain to me why I both already paid the sales tax and the sales tax being included in the itemized capital cost. As I understand it, the itemized capital costs are the sum of costs borne by the dealer / KMF. I know it differs state by state but in Ohio the lessee pays the sales tax up front, and in other states the sales tax would be included in the monthly payments (as it appears to have been done here). Having both the upfront sales tax and the sales tax spread across the lease payments doesn't make sense to me. I'm of the opinion that there was a mistake made somewhere. I'm also fairly certain that if the sales tax were included in the itemized capital cost in error than my monthly payments would be lower as well.

2. Ohio does have the 'double tax' issue, but it appears there's a way to avoid it if you have the right paperwork. I got a quote from my original dealer in Indiana for the buyout, and it was $45,312. KMF doesn't collect sales tax in Indiana but does in Ohio, so the difference of the $3600 between the Ohio buyout price KMF gave me vs. the Indiana price must represent the sales tax collected in Ohio. My issue here is that I need to attempt to either get KMF to take advantage of the double sales tax issue, or to sell me the car without sales tax and leave it up to me to to square up with the State of Ohio. Both of these seem like they're going to require a lot of work.

I just made my second lease payment today to buy myself some time to work through this. If I execute the buyout now, I will have paid roughly double the sales tax I had originally calculated. If I manage to get to the bottom of the lease issue (#1), I would be left paying about one and a half times the sales tax I had originally calculated. If I manage to accomplish both, it should end up saving me around $3300. I'll update this thread with the situation as I make progress.

Is there any utility in escalating to higher ups when calling KMF? The base level customer service reps are decent but I feel like I need to talk to someone who really understands this stuff.

As always, any help / feedback would be appreciated.

 

[Zac]

Thank you. The spreadsheet I posted actually had none of my math in it, I just plugged in the numbers on the lease agreement so I could work with them more easily.

I think there's two things going on here:

1. When I bought the car from the dealer I paid ~$2300. First payment and then $1688 in sales tax. Yet, on the lease agreement, the sales / use tax is included as a line item (the exact $1688 I already paid out of pocket) in the itemized capital cost, which minus the lease cash is the $45,767 (adjusted capital cost) shown on my spreadsheet. My dealer and KMF have been unable to explain to me why I both already paid the sales tax and the sales tax being included in the itemized capital cost. As I understand it, the itemized capital costs are the sum of costs borne by the dealer / KMF. I know it differs state by state but in Ohio the lessee pays the sales tax up front, and in other states the sales tax would be included in the monthly payments (as it appears to have been done here). Having both the upfront sales tax and the sales tax spread across the lease payments doesn't make sense to me. I'm of the opinion that there was a mistake made somewhere. I'm also fairly certain that if the sales tax were included in the itemized capital cost in error than my monthly payments would be lower as well.

2. Ohio does have the 'double tax' issue, but it appears there's a way to avoid it if you have the right paperwork. I got a quote from my original dealer in Indiana for the buyout, and it was $45,312. KMF doesn't collect sales tax in Indiana but does in Ohio, so the difference of the $3600 between the Ohio buyout price KMF gave me vs. the Indiana price must represent the sales tax collected in Ohio. My issue here is that I need to attempt to either get KMF to take advantage of the double sales tax issue, or to sell me the car without sales tax and leave it up to me to to square up with the State of Ohio. Both of these seem like they're going to require a lot of work.

I just made my second lease payment today to buy myself some time to work through this. If I execute the buyout now, I will have paid roughly double the sales tax I had originally calculated. If I manage to get to the bottom of the lease issue (#1), I would be left paying about one and a half times the sales tax I had originally calculated. If I manage to accomplish both, it should end up saving me around $3300. I'll update this thread with the situation as I make progress.

Is there any utility in escalating to higher ups when calling KMF? The base level customer service reps are decent but I feel like I need to talk to someone who really understands this stuff.

As always, any help / feedback would be appreciated.

Dang, yours is confusing. You may need to call your DMV and ask...which is likely to be an even more excruciating call than KMF...lol.

Your state is either BS, or your dealer may have messed up on paperwork.

If your agreed price was 49763 and you put down 2300 something is off. Most of the math lines up, but there seems to be a miss.

It should have been something like this...roughly...I'm on a phone so excuse the crude layout.

49763 agreed purchase price
-6500 lease cash
+1688 tax
+650 acquisition
+150 dealer crap
+16 license
= 45767 (buyout price/capitalized)
-27825 residual value
=17942 (amount you owe over 36 mos)
+6782 rent charge (paid over 36 mos)
=24874...and here comes the miss maybe, but it only matters for the monthly pmt
-1688 (part of the 2300 you paid up front, but I dont see it was subtracted out.)
=23036/36 = 639.88 (what your payment should have been)

The 1st pmt is moot in the above math. It just means your buyout was 498 less right away. It looks like you paid tax up front and you're paying it again within your monthly payment. With that said, the 45767 buyout is correct though. Think of it this way. The money you put down, beyond first payment, goes against the difference of (capitalized minus residual plus rent), so tax is the same as the acquisition fee really. It's all just going in the bucket of what you owe, and all it does is reduce your monthly lease pmt. Hopefully you can avoid paying tax on the 45767, but it is the correct initial buyout cost. If you can go through Indiana you should only have to pay tax on the residual of 27825.

If you do keep the lease it looks like you may need to buckle in for an argument to get your payments reduced UNLESS you're actually gaining more than 498 each month vs. the buyout, but that would be odd.

Good luck!