Quote:
Originally Posted by intakexhaust
Good read. Cash, finance or lease all depends on each individuals case but since most of the talk here is of leasing, could mention the cons. One biggie is early termination penalty.
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What's the penalty if you have a loan and give it back to the bank early? (You don't have that option, really, it's called a repo or voluntary surrender -- same thing)
What's the penalty if you paid cash and sell it earlier than planned?
Let's look at the lease's options:
You can give it back early and accept the penalty.
You can pay off the balance of the lease payments, and give it back early. (you've lived up to your contractual obligation)
You can pay off the entire balance (just call and get a payoff, just like a loan) and own the vehicle. Maybe this is cash, maybe you took out a traditional loan. You can then sell it. If you trade it, the dealer can pay it off, saving you the refi step.
All you have to do is figure out which is the least painful.
Let's say you do this 30 months into the 36 month Audi lease we outlined above.
You have 6 payments of $708/mo left, or a $38,500 total payoff. If the vehicle was really worth $32K at the end of 36 mos (see above), let's say it's worth $35K now.
Option one, paying a $3,000 early termination PENALTY
Option two, pay the $4,250 remaining payments, then give it back
Option three, pay off $38,500 and recoup $35,000 for a $3,500 net impact
Paying a $3000 early termination penalty looks good, right??
Or, back to our "paid cash" scenario, you've paid out $58,850 and YOU OWN IT (title is in your safe) but it no longer works for you (why you'd terminate the lease early too) and you sell it for $35,000. It cost you $23,850 to drive it 30 months.
Compare that to what we decided was the best option on the lease to take a $3000 "early termination PENALTY" and we paid 30 payments of $708 for $21,240 in payments plus our $3000 "PENALTY" for a total cost of $24,240
In this example, paying cash beats the lease by $410.....until you realize that you kept $58K invested. If you didn't earn $410 on $58K in 30 months, you'd better get a new advisor.
We get all worked up over the word "penalty" when it may represent a great option we wouldn't have had otherwise.
YMMV
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