Fellow hackers - Is there a certain advantage between lease-to-buy and buying in CA? This is for a Subaru Outback if that makes a difference.
Like the idea of trying the car (or wagon, I must say) for 3 years and buy it, if all works fine for lease term. Is there a certain financial aspect that we’re overlooking?
The buy out price, or RV usually is still substantial amount. How do you plan to pay for the buy out? If you have to finance to pay for the RV, then I think it makes financial more sense to just finance at the beginning. During the lease, you are paying interest at the full selling price of the car for 3 years. Then pay interest again when buying after lease with an used car interest (usually higher).
Correct me if I’m wrong, but aren’t you only paying interest on the purchase price minus the residual. So if the residual is 60%, and you get 10% off MSRP (up to 16% off on an outback!), you’re paying interest on 30% of the vehicle price, which is often less than 2%, or even less with MSDs.
Also you’re only paying sales tax on the monthly instead of $3000 up front, or however much 9.5% of the sales price is.
For many it makes sense unless you’re doing a ton of miles. If you don’t like the vehicle or your needs change or it has major issues you can just turn it in. Otherwise, finance the remaining 60% over 3 or 4 years or whatever if you decide to keep it.
Interest is paid on the average of the sales price and residual value.
At least for the cars I have bought, I have never pay full sale tax up front. The total amount including sale tax is calculated - down payment, then amortize over the length of the loan.
Right, but you’re still adding almost 10% to the vehicle price up front, then paying interest on that amount as well.
[If I looked at my recent release number, I believe interest during lease is the entire selling price. Maybe other leasers/dealers from CA can chime in. But since effective MF is low in my case, it really doesn’t matter. But for brands that don’t do MSD, the interest portion can be big too.]
Never mind. I am wrong about the above. Jon is correct. Interest is base on (selling price + RV ) / 2. Verified with LH calculator.
Using @bfourey’s example, 10% off MSRP (selling price is 90% of MSRP), 60% RV, interest will be based (90%+60%)/2 or 75% of MSRP. It all makes sense why APR=MF*2400 now
Read this thread below. It explains a lot about MF.
Could one advantage to Lease-to-buy if you are able to negotiate a lower buyout than RV?
For example, a $60K MSRP car with a 50% RV should give you a lease buyout amount of $30K, but, let’s say your car is actually worth $20K at end of your lease and you are able to negotiate the buyout down to $22K.
I’m not sure how tax/interest would factor in to this, but wouldn’t this in theory be a potential advantage to lease-to-buy, assuming the discount off MSRP is the same vs financing, since you would be paying less in principal than financing?
Yes and no. the down payment of finance is usually bigger. In fact, the bigger it is, the less interest you will pay. But you don’t pay interest in for the down payment portion, only the loan portion.
But overall, thing aren’t too different between the two. You still pay for the selling price of the car + interest. Interest part is the only different.
This only happened en masse after the financial crisis. It’s very much an exception now.
You should buy Subaru, and then sell it after 3 years if you don’t like it. You will end up with a nice equity, rather than paying high RV buy out price after 3 years lease. You can finance it at 0% now.
Thanks fellow-hackers. Between Ursus@, the 0% deal is for 63 months. So, I guess buying is more preferable (with higher residuals of Subaru, and needing to finance a used car after 3 years)
Plus you avoid paying the acq fee
So you ended up leasing or financing?
Just click on the link he posted.
Good choice! 202020202020