I have a car, which I consider to trade in. Trade in value is approx 20k, and private party value is approx 22k. Trading it in is simply more convenient (20k + 2k tax saving in WA)
Can you please explain the following scenario (#2 in specific) :
Let say the car I wanted is valued at $60,000, with residual value of $35,000 after 3 years. If after driving the car for 6 months and the leased car is totalled, amd it was determined that the car is valued at $50k at the time.
If I don’t put any down payment (or put minimum down), then the GAP insurance should take care of the balance. This is pretty straightforward.
If I put $20k down payment from my trade in, how would it work? Will I get some of the money? If so, how much should I expect to receive?
You will get from insurance company the market value of the car at the time when it’s totaled.
If the day you total it it has $50000 value, that’s what you will get minus the payoff amount (which will be paid to financing company directly).
It does not make any sense to make any down payment on a leased car.
Thanks for the response. To clarify, does that means that there are two value at play here; insurance to determine the value and financing company to determine payoff value?
If insurance determine car value is $50k, and payoff value is $55k, I need to pay $5k out of pocket.
If insurance determine car value at $50k and payoff value is $43k, I will get $7k.
Does this correct?
If my understanding is correct, then assuming the insurance appraisal and payoff value is very close, does that mean I don’t really need Gap insurance? Thanks.
Insurance determines value of the vehicle based on what others pay in the are for the same make/model/year/mileage/condition.
Financing company calculates payoff based on what it is at any given moment (which would most likely be way below market value, if you paid $20,000 down).
If insurance value car at 50k and you owe 55k , you would owe 5k after insurance payment unless you had a GAP coverage.
And, as far as I know, you would get any amount paid by insurance in excess of payoff.
If you believe your car is never going to be worth less than what you will owe the bank, then you don’t need a GAP.
I understand how insurance determine car value.
I just am not able to understand how would the bank consider payoff value on lease? I got general idea on payoff value on car loan, but unsure on lease.
You won’t get any excess if it’s worth more because you don’t own the car, the insurance is basically to pay the lease financial company off. As long as the lease financial company includes Gap insurance (which most do, a couple do not) then they will cover the difference between the insurance coverage and what the financial company requires as payoff.
Poster above is right, if you don’t own the car you don’t get any equity paid to you, it’s lost. So, never make DP on a leased car.
As to payoff amount, I don’t know and don’t care how they calculate it. But generally it’s what the RV is plus amount of depreciation that you haven’t paid for yet (minus down-payment that went towards it).
In theory there is some tax benefit to trading in and putting money down on a lease in WA. However no one does it, no dealer seems to know how to write it, and it’s quite a hassle. It’s weird wording in the tax statutes and in practice could leave you open to tax liability if the dealer messes up the paperwork.
TL;DR Treat things as if there is no tax benefit trading in on a lease and therefore do not use any equity from your lease as a down payment.
Just as in a purchase/loan, at any point during a lease there is a number that you can purchase the vehicle from the bank. That is the number many use to compare to the offers they receive through Carmax, Carvana etc to determine if they are upside down (usually) or have equity and then proceed to sell the vehicle and receive some money on top of getting out of the lease. The same thing applies if it were totaled.
Now depending on the insurance coverage you have (New car replacement, actual cash value, agreed upon value etc) the insurance company is going to place a value on the totaled vehicle. If that value is lower than the lease buyout, hopefully you have GAP. If it is higher, you are paid the difference between those two numbers, just as though you sold it to Carmax or another party.
Although extremely rare that you get ahead like that it does happen.
If you have a history of accidents and totaling vehicles, get gap and keep the cash in the bank, you will need it for those insurance premiums! But for those that don’t, the likelihood of totaling a car is extremely small and the whole ‘nobody should ever put any money down on a lease’ is greatly exaggerated.
This is through many experiences I have seen with BMWFS and a family member who worked in insurance, cannot speak with regards to other lenders and their rules.
I just totaled a brand-new car with $3K down-payment under a 3-year lease, I don’t know what the payout value is after 3 months but I know the cap cost was $21K & that there was a rebate of $2K. The insurance mentioned the ACV being $21K before deducting the $1K deductibles. How much do I owe the lessor?
You most likely owe nothing. 99% chance your lease has GAP (the major exception: Toyota leases you need to buy GAP). But you also spent an extra $3k to lease a car for a short time. If you had put nothing down and just made higher monthly payments, you would be out a lot less money. That’s why you always do $0 DAS.
Hi - Thanks. I think GAP on my lease reads “Guaranteed Automobile Protection” which I did not purchase, and I did put $3K down. I went online and look at my a/c it says Payout value is $16K. I am kinda confused how the maths work. Do I have to contact Toyota Leasing myself about the termination?
the only time you should do a trade in for a lease is
a) you already have negative equity and are willing to roll the negative equity into your next lease and are willing to deal with all the negatives of that
Ah you leased the one brand that charges for GAP! I believe you will be responsible for the difference between the value of the car and what you owe. So if you owe $16k, but insurance only pays out $14k to Toyota, you will be billed the $2k difference.
What is ACV? Assessed car value? If ACV is $21k and payout is $16k, you don’t owe anything, but you still lost that $3k you put down.
ACV means actual cash value. It’s the wholesale value a dealer puts on a used car, like when traded in.
An insurance company should pay retail market value for a totaled car, meaning what similar cars actually sell for, not their asking prices. This value should always exceed ACV, generally by 10-15%.
I would think that if the retail value of a leased car was $20K and the payoff was $18K, the lessee would get the $2K minus any deductible. Maybe he put $5K down on the car when he leased it. I haven’t come across this much, so it’s just my opinion.
