Math of buying out a lease

[Shaun @ Tru6]

My gf has a 24 Lexus that she's leasing, ends in a year with option to buy. She loves the car and will be keeping it. Should she (can she) buy it now vs. making lease payments and buying at term end?

[wilnj]

I think it’s a math equation. She’ll end up paying the remaining lease payments either way. The dealership won’t provide any incentives that they typically offer for early termination because she’s not going into another vehicle.

Unless she’s got a fantastic financing offer that’s currently available to her with a fuse on it, I don’t see an upside.

[Seahawk]

There is a lot to it...very good overview:

https://www.leaseend.com/learn/buying-out-a-leased-car

Start with the contract and then walk down the items in the link.

I have never leased a car so I found the question interesting. Lots of moving parts.

[Rick Lee]

Depends. Does your state make you pay sales and vehicle licensing tax on just the leased portion or the whole car at lease inception? If they tax the whole thing upfront, do they give a credit when buying out the lease?

[cabmandone]

I could be wrong here, but it seems the math is pretty easy.

The remainder of the lease payments + residual value stated on the lease agreement after payments = what she's gonna pay for the vehicle if she buys early. Otherwise it'll be the residual value stated on the lease that she'll pay at lease end. And unless she's a cash buyer, she'll finance at a higher interest rate than some new and CPO offerings depending on the model.

[Steve Carlton]

One advantage to a lease is that if the car is damaged and repaired properly, there's no diminished value that she has to suffer. Another consideration is what is the money factor on her current lease and how does the APR for that compare to the APR she'd get if she needs to finance it. She might be offered a special APR if she buys out the lease at the end, especially if she makes it a Certified Pre-Owned (CPO) Lexus. She might be offered a "pull ahead," the waiver of some payments if she leases or finances a new Lexus.

I suspect the payoff right now is less than the residual + the remaining payments. Depending how her state handled sales tax affects how much tax she'd have to pay on the buyout. There's probably a lease termination fee whether she buys it out now or later, unless there's a pull ahead promo.

[smadsen]

What's the buy-out today and/or the end of the lease? Is this your forever car or do you want a new one every two/three years?

[Shaun @ Tru6]

Thanks guys. I got the lease in PDF and going to go through it. My thoughts echo wil's but going to see what Steve said and if it might apply. Steve, she'll buy it with cash. smadsen she'll keep it for many years and it will look as nice 5+ years from now as it does today the way she cares for it. going to read over the lease and report back if I find anything interesting.

[Steve Carlton]

Some people like to payoff a lease (or a loan) to stop paying interest (or its equivalent on a lease- rent). So as long as the payoff is less than the residual + the remaining payments + the purchase option fee, she's saving rent. For simplicity, she could ask Lexus Financial if she actually makes all the remaining payments in full or not.

[Shaun @ Tru6]

Originally Posted by Steve Carlton

Some people like to payoff a lease (or a loan) to stop paying interest (or its equivalent on a lease- rent). So as long as the payoff is less than the residual + the remaining payments + the purchase option fee, she's saving rent. For simplicity, she could ask Lexus Financial if she actually makes all the remaining payments in full or not.

I can't believe neither of us thought of that. I will try to call today, busy day moving cars around with parking lot being paved.

[Steve Carlton]

If by chance they collect all the remaining payments, then their interest portion is locked in and she shouldn't pay it off. She could be earning interest on the cash to pay it off instead.

[Shaun @ Tru6]

Originally Posted by Steve Carlton

If by chance they collect all the remaining payments, then their interest portion is locked in and she shouldn't pay it off. She could be earning interest on the cash to pay it off instead.

need her social, stay tuned.

[Steve Carlton]

What did you find out?

[Shaun @ Tru6]

Sorry, as noted earlier and you would expect, she won't save money buying it out early.