Nogard13

Hey Guys,

I searched and was not able to come up with anything on this. Basically, the "sale price" for a lease vs. buying (even with the $1500 allowance from Acura) is much lower if you lease. For example, the discount off MSRP is $1625 higher if you lease. So, my question is, if I lease, and then refinance through my Credit Union a month or two later, do I just pay the residual and any balance still owed, or is there a penalty (like they add up all the monthly payments, which include the MF, and get the total that way?)? It's been a long time since I leased, but I'm not sure if the payoff amount doesn't include the MF on the unpaid payments.

Because if it's the case that I can get the car cheaper, and then pay it off by refinancing, I can save a bunch of money. I understand that I'll have to pay the sales tax when I purchase it, but I don't have to pay sales tax when I lease it, so it works out to be no difference in the purchase price.

Thanks!

JB in AZ

I've never leased a vehicle, so don't take this as gospel, but my understanding is that you would owe the total of the payments, as you signed a contract to do that. I know when I investigated leasing when I bought my 19 RDX, I didn't want the hassle of making a monthly payment, (I was able to pay cash) and they offered a "one pay" lease. That amounted to basically making a payment for the total of the monthly payments. No thank you.

I hope someone will either confirm or correct me.

ceb

Say what? Of course you owe all of the monthly payments along with the residuals and any lease turn in fees.

Let's say that the negotiated price is $50k and the residual is $30k. During your lease period, you are paying the difference (the $20k) plus taxes (in most states only on the $20k) and the money factor (probably $2k over the life of the loan).

If you lease, then you can't "refinance" the car because it doesn't belong to you any more than you can refinance the Avis rental.

So what will you owe in total if you decide you want to buy the car? It'll be that $50K negotiated price plus taxes, tags plus the MF.

You can't beat the system. Like another poster said, you can get a "one pay lease" (other manufacturers call them different names or "security deposits") but that one payment is the $20k + taxes + a lower MF, but you really have to weight the numbers carefully. The dealer always wins. Always.

Nogard13

I just wasn't sure if the leased part (before the residual) is like a loan or not. Acura and Honda allow you to pay off a loan at any time, with no penalty or interest charged. They provide a loan payoff amount and you can refinance that amount (I did this once) and let another bank assume the loan or pay it cash and own the car outright. I thought a lease was like this where you had a payoff amount and interest was paid monthly (if you pay the loan balance off, there is nothing to charge interest on).

As for refinancing, it's the same as selling it or trading it in. You can take a lease, which you don't own, and trade it in at another dealer and they will pay it off and either credit or debit the amount towards your new car. My dad did this once, but he's not around anymore for me to ask him how it went or to give me the details of the financials.

sonyfever

That is my understanding as well, you need to pay for the extra interest that come with a lease even with one pay option. Acura has higher MF than BMW for example, so the money you "saved" up front, you lose them in the interest portion of payoff. Leasing is never going to save you any money for a normal car, it just gives you more money you can spend elsewhere during the same period of ownership.

Isn't Acura offering low rate loan now? Why bother refinancing?

Madd Dog

Keep this in mind: the finance company buys the whole car, and charges all that interest to you for the period of the lease. The terms of that loan are as vague as they can make them, but how can it work any other way? The biggest difference between that and a traditional loan is that at the end of the loan, the principal of the car is paid off. In financing a lease, the principal only gets reduced to the residual, reducing the amount of principal repayment included with each month’s payment, thereby reducing the monthly amount of the loan. You always pay interest on the amount of the bank’s money you are borrowing. There is no way around it.

Take a look at an amortization table and you see the monthly payments remain the same, but the share devoted to interest and the share devoted to principal are different for each month.

At least that is how I understand it.

Nogard13

I leased an Acura back in 2007 and kept it the three years, then returned it. I did it because the lease terms were much, much better for me back then, and the MF was 0, equivalent to a 0% interest on a loan, compared to a 6% auto loan rate (with excellent credit). I figured I could lease it and then buy it for the residual in 3 years, thereby saving 3 years of interest and financing the residual for 24 months at whatever interest I could find. In 2010, the interest was under 2%, which would've saved me money, but I ended up getting a CPO BMW instead because it cost me the same amount as my residual (also a 2007, with low miles, and 2 years of extended warranty, free service, etc...).

It was my only lease and I actually threw out that paperwork last summer, when I moved and cleaned out my filing cabinet, so I can't go back and look it over to see what the terms were. I thought that the lease was basically a loan for the depreciation value during the term of the lease (i.e. if the car will depreciate 40% then you finance that 40% over the specified amount of months). If the MF is added in, regardless of if there is a balance or not, then that sucks for me. I can just take the $1500 rebate on the car for financing with Acura and turn around and refinance the car through my credit union (currently offering 2.14%) since you can't combine the rebate with the 0.9% financing.

ceb

I think you'll have a hard time finding a bank that will "refinance" a lease and it will certainly be far more expensive than just buying it up front without trying to play the lease game.

Like you said, there are a few cases where a lease may be cheaper. When my sister leased her last RL in 2010, the MF was very low with a ridiculous residual, we ran the numbers and a one pay lease plus the residual was $25 more than buying the car.

There are, of course, huge downsides of a one pay lease because you're screwed if you total the car, but it does make it cheaper.

Waetherman

I’m no expert since I’ve never leased a car but my understanding is that the leasing company determines the buyout cost for an early sale, which is determined by the remaining payments and residual value that would remain at the end of the lease. If this were an easy way to save money, people would do it all the time, and we wouldn’t see people on craigslist offering cash incentives for people to take over their leases.

If you want to get out of the lease, either through early payment or some other mechanism, read the terms carefully and/or consult a lawyer. It’s possible that there’s some loophole in the contract language that may yield some kind of deal, but it’s unlikely; these terms have been determined by teams of accountants and lawyers with decades of experience in just this sort of thing.

DJA123

The same applies to large down payments on leases to lower monthly payments. If the car becomes a total loss, so does the upfront money.

​​​​​​Leasing works for some people for a variety of personal reasons, but as a way to game the system for profit likely isn't one of them. The fact that you are still fundamentally upside down early in the agreement makes any profit a tough get.

Lease for the traditional reasons instead.

ceb

Absolutely correct. Leases are designed to make money for the leasing company and have invented terms that obfuscate their true meaning - down payment becomes "capitalized cost reduction" (reduction is good, right?), Money Factor instead of interest rate (.0024 sounds soooo much better than 5.76%)

Madd Dog

Leasing basically costs more, but some folks are happy with the benefits. You pays your money and you takes your choice.

I have always chosen to purchase, but that does not mean I don’t see the benefits of leasing.

ceb

Right - always driving a newish car under warranty, knowing what all the costs are going to be, not worrying about value when you want to move on to a different car and so forth.

JB in AZ

The big issue for me is when you lease, you pay for the miles up front. If you know you will drive a lot, you can negotiate a lease that fits the number of miles you expect to cover during the term. If you end up driving a lot less miles, you are over paying. The same thing applies in reverse, if you end up putting more miles on your leased vehicle then what you negotiated for, you will pay through the roof for those extra miles. No thank you.

DJA123

It's just another example of personal preference and personal choice. We all make decisions that are best for our own situation. Buy/lease is no different.