Lease then Buyout - Contract Explanation

[Mach_Tuck]

Ok so on a lease there isn’t an “interest” the term they use is called a money factor. Now the money factor is basically your interest and your “rent” charge. If you choose to buy a lease out early you are responsible for the remaining payments, and taxes on the second half of the vehicle. The lease payments you are paying now only include taxes for the portion of the car your using..the depreciation. So generally if you pay the whole lease off and buy the car out in the end even with your lease cash you still end up paying more for the car than if you just purchased it. Now if you go a different bank and refinance the lease for a purchase, or just write a check for the remaining balance you will save money on the interest. In the end saving you more money. The longer you wait in a lease to buy it out, the more you are paying for the car.

Yes, Money Factor is another way to think about interest. Take the Money Factor * 2400 to get the approx interest rate. Money Factor is used to determine the RENT CHARGE or INTEREST for the lease. This is how they get the lease cash back.

You are correct that you will pay more if you complete the lease and then buy the car at residual. It would be cheaper to buy it upfront. Buying it almost immediately gives you the benefit of the lease cash and then does NOT give them the benefit of the rent charge to get it back.

"The longer you wait in a lease to buy, the more you pay" is absolutely correct as you will be paying more of the rent.

Cheers

 

[bugaboo90]

Thank you all for explaining this!

 

[John Berger]

Could you or @Brian@shottenkirk explain the rental charge thing. What info should I look at on my lease paperwork to understand this charge? I just leased the car early feb and next payment is due soon. thx

Mach Tuck and others are right. The benefit of the Kia Stinger lease with early buyout is the opportunity to pocket most of the current $7,000 rebate (as of March 1, 2018). This occurs because Kia is only offering the rebate on a lease deal, not on purchase or car loan. However, don’t panic about how fast you have to do this. Given the current lease interest rates (approx. 3% or a .00125 money factor), every month that goes by is costing you less than $100 of the $7,000 rebate. And that does not include how much interest the cash you’d pay is foregoing based on where it’s currently invested (e.g., a savings account) which would lower the decrement further. Just lease the dang thing, then exercise your buyout option. The dealer is not involved with this transaction and Kia’s finance company couldn’t care less about the dealer. It’s a national/international program to ‘hype’ Stinger sales, so it’s to your benefit to exploit it.

 

[MarkyMark]

RENT is calculated as follows - (Adjusted Cap Cost + Residual) * Money Factor. This would give you the total for the term. Divide that by term to get the monthly rent charge. I believe the lease only shows the total.

It can be viewed as the "interest" on the lease. However, it must be thought of as "two pieces of interest." One for the loan to cover the lease (adjusted cap cost) and one to cover the "asset (the physical car)" in your possession. Most of the time, the rent charge is very close to the lease cash...hopefully never more.

KMF basically robs Peter to pay Paul. Kia takes most of the profit out of the vehicle itself with big lease cash, then gets it back over time via the high Momey Factor/interest over 36 months to KMF.

With the mechanics of a car lease being so complicated, there is lots of room for dealers to take advantage and stuff a lot plod profit into the process.

As a consumer, you are to think Lease Cash is a cash back discount scenario as if you were buying the car (thinking you are never paying that back, rather it’s a Perminamt discount off the amount you’ll ever pay back). You are not to focus on stream of payments x 36 months and add the residual in, and discover the total cost is now more or around MSRP...

For some odd reason, I’ve seen a lot of people do that - and some get angry “where did my lease cash go?!” Showing they don’t understand how leases work - it at least they care and can start to figure it out.

And the other folks who say that’s a fine deal - it would NEVER pay MSRP if purchasing the car. So why does it become a great deal with a lease?... my only guess is they are so focused on the lower 36 monthly payment they can afford, not much else matters/can be rationalized away?...

 

[Iceman25c]

Hello,
I'm considering leasing with the immediate buyout. It seems like the best of both worlds and worth the extra effort. Two questions I haven't seen asked yet:
1. Does it matter the order in which you apply as it applies to your credit score? Is it better to get pre-approved for the loan (I'll have one fewer account with a balance and one fewer credit inquiry) then apply for the lease or better to get the lease first and have a more specific loan app? Does this even matter?
2. If I'm bringing some inequity, does that just end up in the adjusted cap cost that I'll pay off with the new loan? My credit union will finance up to 125% of NADA.

Thanks for the help- this is a great community!

 

[Mach_Tuck]

Typically, hits to credit are minimized if done closely together for as it's assumed you are "shopping" rates. I don't think it will matter to be honest.

Negative equity is built into the Gross Cap Cost and the adjusted based on lease cash. So yes, you will have to cover that with the lease buyout loan. I'd pay it down first if you can, otherwise you lying tax again on that negative equity...assumes you live where have to pay sales tax on autos.

 

[netmag]

Great thread! I was considering paying a chunk of the principle down at the start. I was thinking this may be better to do after the lease has been converted to a loan, however, I've read that some people have issues with Kia not applying extra money to principle without calling someone.
I.e. I've heard they don't exactly make it easy to designate that extra money go to the principle on the site and instead it just pushes the payment date back. Apparently such difficulties isn't isolated to Kia, but I don't really know if it's common with them or not.

However, I want to minimize hassle if I make this one extra payment. So I just wanted to confirm if this indeed would be the best time to try to make such a payment or could it actually be better to pay it down earlier in the process at lease time?

 

[Iceman25c]

Just got back from a visit with the dealer. I'm a little confused on a couple of things.

1. In Texas, I have to pay the full tax when I lease. Do I also have to pay sales tax again when I buyout the lease? The dealer said yes as the name on the title changes.

2. They offered a balloon financing term. Same lease cash back, but it's financing so my name is on the title. They said I could buy that out without paying tax again. One manager said I could do it right away, the other said I had to wait 90 days. No first payment required. Has anyone tried this or does it even make sense?

Thanks again forum friends!

 

[John Berger]

They have no need to know. It's all about you and KMF at that point. Once you see your account with them post online, login and contact them for the Buyout. Dealer isn't involved at all. Just get the best deal you can from them and go from there.

And we would all love to see how this all works out in the end!

Brian -

My lease model (one I wrote myself), tells me your deal (with a lower $50,000 purchase price, $52,300 MSRP, $5,000 down paymant 52% RV 7% sales tax, no trade-in allowance, a .00125 MF (3% APR) & $650 fees would yield a $422.30 monthly lease payment, using the common straight line (SL) depreciation method adopted by the auto leasing industry. Once you've pulled the trigger, you can execute the buyout. My understanding is that the leasing company's methodology on the early buyout uses the theoretically correct 'constant yield' methodology to compute the vehicle 'depreciation' which is a few $ different than the SL methodology they used to compute the monthly lease in the first place. If I'm incorrect, someone please comment/advise.

 

[John Berger]

I am working my a dealer now and looking to go the Lease route described above instead of just paying Cash all at once. My question is, would it help to pay more money down or does it not matter at all?

If you KNOW you're going to buy out the lease, then the more you put down, the less you pay interest at the money factor rate (was around 3% APR, now closer to 5%). In theory, as long as the money you use to purchase (loan, or foregone interest on some investment account) is earning a rate less than 3%-5% (the money factor range), then you are better off and you should do the lease/buyout as soon as you can. As I have posted elsewhere, however, do not panic, since each month you delay the buyout, you are diminishing Kia's $6,800-$7,200 'rebate' (based on the money factor (3%-5% APR)) is somewhere between $85 & $150 per month delayed.

 

[JVsGT]

Just got back from a visit with the dealer. I'm a little confused on a couple of things.

1. In Texas, I have to pay the full tax when I lease. Do I also have to pay sales tax again when I buyout the lease? The dealer said yes as the name on the title changes.

2. They offered a balloon financing term. Same lease cash back, but it's financing so my name is on the title. They said I could buy that out without paying tax again. One manager said I could do it right away, the other said I had to wait 90 days. No first payment required. Has anyone tried this or does it even make sense?

Thanks again forum friends!

I'm in the same boat only I already signed my lease deal last month. I was attempting to buyout using a Credit Union rate of 2.74 APR for 72 months. That's when they asked me if I was going to roll the taxes into the loan or pay up front. I told them I had already paid taxes on the full price of the car (minus my trade value) but they said I would have to pay the sales tax on the buyout amount since it means changing the title. Apparently this is only the case in a few states. I did the numbers and it's pretty much the same price for buyout/taxes/interest as it is to see the lease to maturity and then finance the residual based on 2.74 APR for 48 months. The only thing I need to confirm is if taxes still need to be paid if I see the lease to maturity and then purchase at residual. I read somewhere that scenario is different than a buyout and therefore classified as a "special purchase" and no taxes would be due.

 

[SEA Stinger]

I'm in the same boat only I already signed my lease deal last month. I was attempting to buyout using a Credit Union rate of 2.74 APR for 72 months. That's when they asked me if I was going to roll the taxes into the loan or pay up front. I told them I had already paid taxes on the full price of the car (minus my trade value) but they said I would have to pay the sales tax on the buyout amount since it means changing the title. Apparently this is only the case in a few states. I did the numbers and it's pretty much the same price for buyout/taxes/interest as it is to see the lease to maturity and then finance the residual based on 2.74 APR for 48 months. The only thing I need to confirm is if taxes still need to be paid if I see the lease to maturity and then purchase at residual. I read somewhere that scenario is different than a buyout and therefore classified as a "special purchase" and no taxes would be due.

That totally sucks!

I wonder what kind of tortured logic the state government uses to justify collecting sales taxes twice on the same car, being driven by the same person!

 

[Iceman25c]

Just got back from a visit with the dealer. I'm a little confused on a couple of things.

1. In Texas, I have to pay the full tax when I lease. Do I also have to pay sales tax again when I buyout the lease? The dealer said yes as the name on the title changes.

2. They offered a balloon financing term. Same lease cash back, but it's financing so my name is on the title. They said I could buy that out without paying tax again. One manager said I could do it right away, the other said I had to wait 90 days. No first payment required. Has anyone tried this or does it even make sense?

Thanks again forum friends!

Has anyone had experience with balloon financing? It sounds like it may help with the double tax problem .

 

[shaggystinger]

The short answer is yes BUT only if you are purchasing the car and NOT leasing it (ie. no lease cash). Balloon payments are for those who want a lower monthly payment but also have the discipline to save in addition to your monthly payment. At the end of a balloon loan you could owe a sizeable final payment which, if you didn't save for, you may end up having to pull another loan out to cover the remaining loan amount. Just an example: Car costs $27000, 5 year balloon loan = $398 a month, final payment = $6,210. There are other factors of course but you get the general gist. It works for some folks but definitely not for everyone!

 

[Iceman25c]

The short answer is yes BUT only if you are purchasing the car and NOT leasing it (ie. no lease cash). Balloon payments are for those who want a lower monthly payment but also have the discipline to save in addition to your monthly payment. At the end of a balloon loan you could owe a sizeable final payment which, if you didn't save for, you may end up having to pull another loan out to cover the remaining loan amount. Just an example: Car costs $27000, 5 year balloon loan = $398 a month, final payment = $6,210. There are other factors of course but you get the general gist. It works for some folks but definitely not for everyone!

Interesting... My dealer is offering balloon financing with the lease cash. My thought is that I'd take this option and then buyout and not have to pay tax twice. I'm just waiting on the details of buyout- minimum time, costs, etc.

 

[shaggystinger]

Interesting... My dealer is offering balloon financing with the lease cash. My thought is that I'd take this option and then buyout and not have to pay tax twice. I'm just waiting on the details of buyout- minimum time, costs, etc.

Very interesting! Keep us posted on how the deal is going. There are some savvy guys/gals on the forum that can help you not get yourself in a financial bind.

 

[bhargv]

Everyone here is talking about lease buyout did anyone actually did lease buy out if so what are the numbers.

 

[MarkyMark]

Everyone here is talking about lease buyout did anyone actually did lease buy out if so what are the numbers.

I'm apart of two Stinger forums. I cannot recall if they've been posted here or there, but some paperwork, and examples (one was not a Stinger but showed the Kia lease buyout paperwork/numbers clearly) on one of these sites. They are here. At least enough so you know it's a valid way to purchase a car.

 

[bhargv]

I'm apart of two Stinger forums. I cannot recall if they've been posted here or there, but some paperwork, and examples (one was not a Stinger but showed the Kia lease buyout paperwork/numbers clearly) on one of these sites. They are here. At least enough so you know it's a valid way to purchase a car.

Found one here itself thanks

 

[shaggystinger]

Read this on MVA's website today and wondering if anyone in the "double tax" states may be able to shed some light on their lease buyout experience. Any thoughts?

"In many cases, the vehicle is exempt from any excise tax provided that the lessee(s) identified on the lease agreement is/are the same as the new owner(s)."