Just initiated a volvo lease with a ny dealer for a car registered in nj. I’m seriously evaluating immediately buying out the lease. My novice understanding is that right after signing, you would need to pay close to the adjusted capitalized cost, ignoring for the moment the effects of the first payment and a $450 fee I think they add on in this case.
Is that roughly correct? The language of the lease about this is very complicated. I could type it here if need be, but it must be the same in all VCFS leases.
I’m assuming your are doing a single pay lease. You may want to check the early termination purchase option criteria in your VCFS lease agreement. It will reference constant yield rate or actuarial rate used to calculate the Adjusted Lease Balance (ALB). In most lease agreements, ALB is calculated as follows…
You can also use the PV function in Excel to find the Adjusted lease balance (ALB) for the single pay option…
ALB = PV(RATE, # of months remaining, 0,-rv,1)
Using the Excel RATE function with the following syntax:
RATE = RATE(term, -(ACC - Base Single Payment Option), Res Value, 1)
Annual Constant Yield Rate = 12 x RATE
ACC = Adjusted Capitalized Cost
Your buyout is calculated as follows…
(ALB + PO FEE) x (1 + t) + applicable fees
t = sales tax rate
PO = Purchase Option
If you’re doing a monthly payment lease, the ALB formula is a bit different…
And, as before, your buyout is calculated as follows…
Depends on the numbers and the car. If it’s a V60 wagon they won’t make them forever. Better to make the decision now instead of at lease end after paying a hideous rent charge.
Some lease contracts describe the purchase option before lease end in the section under early termination (maybe FMC). If you’re exercising the PO before lease end, you’re terminating the lease early.
A couple of posters warned against owning a Volvo outright, but didn’t say why. I know it has slightly below average reliability but am willing to live with that in order to have a car that matches my needs/wants. Or was it something else?
This is my logic, and I welcome anyone pointing out if it is flawed:
I have enough savings to purchase, and could not earn in a safe investment anything close to the apx 10% APR the Rent Charge equates to, even accounting for inflation.
I negotiated a very attractive Adjusted Capitalized Cost that is almost 20% below MSRP. I think that helps limit potential losses from wanting to sell around when the lease would have ended and there not being a lot of demand for this vehicle then.
Having to worry about lease mileage limits takes away from fully enjoying the car.
Good point, but there is a crossover point where you need to either buy out the lease or owner miles start to become much cheaper per mile. As an extreme example, the car I’m replacing (which still works) is a 2000 Audi A6 wagon I bought for $40k that has 311k miles on it. I don’t know exactly how much I’ve paid in maintenance over that time, but it’s the original engine and transmission, and I’ve minimized it by DIY where reasonable.
As I mentioned in the original post, buy out seems a lot more attractive now than at the end of the initial lease, both because of the high MF on money I don’t need to borrow, and because buyout now is almost all about the adjusted cap cost reflecting my discount and incentives, whereas buyout at lease end is relative to MSRP (lease residual of 58% * MSRP, not sale price), unless I’m confused.
