Help Needed: Early Buy-Out Calculation Discrepancy for 2023 Ioniq 5

Ask the Hackrs
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1

Hi Leasehackrs,

Longtime lurker, first time poster. I’m in a bit of a bind with an early buy-out situation for my newly leased 2023 Ioniq 5 and would greatly appreciate your expertise.

Situation:

Location: I live in Washington, DC. Car leased in Maryland (there aren’t dealers in DC)
Lease Start: Just 6 days ago.
Hyundai Finance Buy-Out Quote: $39,794.99.
My Calculation: $32,896.42.

Calculation Details: I arrived at my figure by subtracting the non-accrued rent charge from the Adjusted Cap Cost. The Adjusted Cap Cost is $40,141.29, and the total rent charge for the lease term is $7,451.87. After deducting the first month’s rent of $207, I calculated the buy-out price.

Points of Confusion:

  1. Hyundai’s Calculation Method: Is there a specific approach Hyundai Finance uses for early buy-outs that might differ from standard calculations?
  2. Impact of $7500 Rebate: I received a $7500 rebate when leasing. Could this be affecting the buy-out amount, especially in terms of forfeiture in an early buy-out?
  3. Processing Time Factor: Since the lease is very new, could incomplete processing be causing an inaccurate buy-out quote?

Seeking Clarifications:

  1. What might I be missing in my early buy-out calculation?
  2. How does a $7500 rebate typically influence early lease buy-outs?
  3. Is it common to see such a significant difference between the lessee’s and the finance company’s buy-out calculations?

I’m trying to make an informed decision and any insights, advice, or similar experiences shared would be immensely helpful.

Thanks in advance for your guidance!

2

I could be brain dead today, but it doesn’t seem like you’re factoring in the base payment before rent charge. You still owe the remaining payments (sans rent charge)

3

Yes, the buyout is going to be very close to your ACC.

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4

That is not how the buyout is calculated.

Your buyout is the acc less the depreciation payments made.

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5

Thanks for the quick reply! Can you explain a little more?
I understood that my payments are made up of depreciation + rent charge + tax. So, with a 1 month buyout, shouldn’t this be: ACC - depreciation + accrued rent? (if so, that’s the same as RV + unaccrued rent).

6

Thanks!
I was assuming that the rent change was a part of the depreciation and amortized amounts. It sounds like it’s an additional charge and that’s where I’m off. Is that right?

7

Thank you! This is what I was missing. I could not figure that out from the wording in my contract or 6 hours of internet searching. Even GPT4 didn’t know this.

8

Look at your lease contract to see how the adjusted lease balance is calculated. It is calculated in many different, but equivalent ways. One way to do it is the add the sum of the remaining depreciation payments to the residual value. To do that, you’ll need to create a lease amortization schedule like the one below…

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Or, equivalently, you can add the sum of the remaining payments to the residual value and subtract the sum of the remaining rent (interest) charges. Again, you’ll need an amortization schedule. Another way to compute the adjusted lease balance is to use the Excel formula with the following syntax…

Adj. Lease Balance = PV(RATE, # of payments remaining,- base payment,-residual,1)

where

RATE = RATE(term,base pay,-adj. cap,res,1)

You must compute RATE first, then insert it in the PV expression. RATE is the lease amortization interest rate implicit in the lease. Lease contracts refer to it as the actuarial of constant yield rate.

If you buyout within 30 days of lease inception, then the easiest way to compute the adjusted lease balance is as follows…

adjusted lease balance = (adjusted cap cost - 1st base payment) x (1 + RATE)

Your buyout is the adjusted lease balance plus any applicable taxes and fees.

The 1st payment is due at lease signing in which the entire amount is treated as a depreciation payment. However, interest (rent charges) is always levied one month in advance Unless, I’m mistaken, you didn’t provide enough information for me to compute the RATE. In need the base payment and residual.

9

Nope. See the bolded portion in my post above.

10

It’s the ACC minus the depreciation portion of 1 month’s payment. That’s all.

Things get a little blurrier when you’re talking about early buyouts of one pays, because in that situation, the rent is paid in full at the beginning, but earned monthly. On a monthly payment based lease, rent charge is earned and paid each month. This is why your buyout only reduces by the depreciation portion of each payment.

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Specifically for one-pay, correct?

12

Yes… I swear I had typed that. Post corrected.

13

Nope. It’s (ACC - 1st base payment) x (1 + RATE). The 1st month’s base payment is treated entirely as depreciation (paid at lease signing). See bolded part in my post above.

14

Just a comment, (I think) to simplify the RATE. It appears to me that the rate formula ( RATE = RATE(term,base pay,-adj. cap,res,1) ) is only necessary if you don’t know the money factor. (RATE being the implicit interest rate per period, i.e. per month, as a decimal number, not a percentage, as far as I can see). So if the money factor is .002, for example, we typically are told to multiply the money factor by 2400 to get the annual interest rate as a percent (i.e. 4.8%). To get the annual rate as a decimal number, you would multiply by 24 (i.e. .048). To get the monthly rate instead, you would multiply by 2 (i.e. .004). So it looks to me that a shortcut here is that RATE=mf x 2. Am I wrong?

15

This shortcut only gives an estimate of the RATE although it is very close. RATE is used to compute adjusted lease balances, not payments unless the fund provider uses and interest rate in lieu of an MF. If you want to know exactly what the periodic (monthly) interest rate used to amortize the lease in determining adjusted lease balances for purposes of computing early term purchase options, then you need to use the RATE formula…

RATE = RATE = RATE(term,base pay,-adj. cap,res,1)

Interest Rate = 2 x MF only gives an estimate of the monthly rate as a decimal. If it were used to compute adjusted lease balances, the balances would be off a bit.

Not sure if you read my post in the following thread…

Proving Money Factor x 2400 = Interest Rate - Ask the Hackrs / Buy/Finance - FORUM | LEASEHACKR

where I do provide more detail…

Let’s look at the MF formula for computing the monthly base payment…

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The above shows that interest is levied on the average depreciated lease balance and illustrates that…

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It’s a bit more complicated than this and involves a Taylor series expansion encountered in calculus which is why the above only gives an estimate of the interest rate but it’s very close.

The amount financed in a lease is always the adjusted capitalized cost (Adj. Cap) which is analogous to the loan amount in a loan and is determined as follows…

Gross Cap = Sell Price + Amounts Financed (e.g., capitalized fees such as the acquisition fee)
Adj. Cap = Gross Cap – Cap Reduction
Depreciation = Adj. Cap – RV Note: Depreciation is not Sell Price – RV

??? Let me know.

16

Thank you. Since calculus is very long into my past, I might let that slide.

The only additional comment I would make is, when you say an “estimate,” I wonder if it’s close enough for our purposes! I happen to have a current deal where I am thinking I will do an early buyout, so I was looking for how this is appropriately calculated given the lease says it uses an actuarial calculation to calculate remaining rent payments at any point. Every dealer I’ve encountered says “we don’t know how that is calculated.” So thank you so much for the formulas (or is that formulae?)

Anyway here’s the point I am coming to: my particular deal does indeed have a money factor of .002 (so my “estimated” rate of .004). Using the formula you so kindly provided in Excel, I get a RATE of .0040303. That’s pretty darn close to .004!

17

No big surprise. Very typical. Shame on them.

Yup, it’s very close. Not sure how many payments you have remaining, but you can compute your adjusted lease balance in many different but equivalent ways. Remember that RATE is the ACTUARIAL RATE REFERENCED IN YOUR LEASE CONTRACT. I’m happy to provide you with an estimate of your buyout but Ill need some details from your lease agreement. In the meantime, you may want to try your hand at creating a lease amortization schedule like the one below…

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which is one way to determine your lease balance at any point in time. Another way to compute the balance and, perhaps, the easiest way without creating amort schedules is to use Excel’s PV function. This function computes the sum of the present value (pv) of the remaining base payments and the pv of the residual value to arrive at the adjusted lease balance.

Adj Bal. = PV(RATE, pays remaining, -pay, -rv,1)
RATE = RATE(term ,pay, -cap, rv,1)

pay = base payment
cap = adj. cap
rv = residual value
RATE = periodic (monthly) rate implicit in the lease

You’ll need to compute RATE first, then insert it in the PV function.

Sure! You’ll only be a few dollars off. However, if you can determine the RATE with no hassle or little fanfare, why not? Don’t know how young you are but I’m willing to be that you have used a TI83/84 calculator. You can also use the TVM application to find the adj. lease lance at any point in time.

18

Hah, I’m old enough to have used a Ti83/Ti84, but to be honest, after using Excel all these years i would be far too lazy to use one of those (it would be almost as bad as using a slide rule).

Actually, I’m picking up the subject car on Tuesday. It’s a Volvo XC60 Recharge, and what got me into all this is when the dealer pointed out to me that I could lease the car to get the IRA e-rebate and then do an early buyout–but could not “prove” to me that it would work. Not being one to take a car dealer’s word about much of anything, I started researching the subject of early buybacks which is how I eventually ran across these threads–which, trust me, were surprisingly difficult to find.

The dealer is also trying to make me believe that I would have to wait at least 3 months before doing the buyback. Despite my annoyance that they can’t be honest about that, I’m willing to wait the three months anyway if it helps them out–after all, they brought the concept to my attention in the first place; I haven’t decided for sure that I will want to do the early buyback in the end because I do like the flexibility of having a lease (and the guaranteed residual value; hard to say how much tech will change over the next 3 years and affect the car’s value).

I figure I will compare what the Excel spreadsheet formulas say to what VFCS says my buyback would be once the lease hits, but at least I’m comfortable that going for the lease and getting the rebate made sense.

19

That’s probably BS. I would not have told the dealer about the possibility of doing an immediate buyout because they could potentially lose money (hence 3 weeks). My strategy would be to ask for a larger dealer discount (yields a lower buyout) in exchange for a higher MF IF I intend to do the buyout within 30 to 60 days. I would read your lease contract regarding early term buyouts. Your agreement is with Volvo (I’m assuming Volvo financial is your fund provider), not the dealer. BTW, if you buy within 30 days, your adj lease balance = (Adj. Cap Cost - 1st base payment) x 1.004. I used the estimated periodic rate. You’ll need to add any purchase option fee to the adj. lease balance plus applicable taxes and fees. See your lease agreement early term buyout clause.

20

As a negotiating strategy, that makes sense. In my case, I negotiated a purchase first, and then the dealer recommended I consider doing a lease with a buyout to get the rebate, which was a new concept to me, so I couldn’t really use that strategy of bigger discount vs higher MF. Next time!

(It’s hard to find base MF these days AFAIK. Well, it used to be easier, anyway. Actually, when the dealer first quoted the lease, they used a marked-up money factor and the already negotiated selling price. Of course, they also didn’t tell me the money factor they were using until I asked, but also of course it would have been possible to calculate that. But I only knew to knock that down because another dealer had quoted me a higher price with what turned out to be the base money factor–the original dealer did not resist when I then asked them to adjust to the base MF. Now I see this site is a good place to figure out what current base MF is in the Marketplace–good to know!)

The thing about the three months is: if the dealer had said, “please wait three months before you buy it out, so I get my financing credit,” I would have done it. I don’t appreciate being fed BS. It seems they can’t resist. Ironically, the sales manager subsequently thanked me for being transparent. What a concept!

By the way, and I am just including this in case other folks out there run across this thread just by searching, as I did, and are relatively new to leasing: I originally did not consider leasing because the Volvo-advertised monthly cost seemed unattractive, even with the rebate. I assumed that the reason the monthly cost was high was that it included a high money factor. In fact, it turned out that the money factor is not bad in the current environment; the lease cost is high because of a low residual. But if you understand what is going on with the lease, and the lease allows an early buyout by subtracting out unearned “rent” (interest), AND you live in a state whose sales tax policies don’t totally screw you, AND you want to buy out the lease early, then you really don’t particularly care what the residual is. Or, for that matter, if your intention is to buy the car at the end of the lease (i.e. not early), a low residual is fine also. If your intention is to turn the car in, then you want a supported (artificially high) residual (which reduces the monthly payment.) (And just for the sake of clarity: no, you typically cannot negotiate the residual with the dealer for a manufacturer-supported lease. Usually, it is what it is for a given lease offer).