Pay off Lease Early or Bite the Bullet?

Ask the Hackrs Buy/Finance
1

Hey guys, first time poster so my apologies if I screw this up somehow.

I recently got a Carvana quote of $33,430 roughly for my 2020 Honda CR-V EX Hybrid AWD that I’m 13 months into leasing (36 month lease total). I am wondering if I should just go ahead and pay off the last 23 months of my lease and begin financing, just so that I can hop ship when I find a good used car that I can perform a trade-in with. This time with this market is the only time I imagine I have this opportunity to essentially exit my lease with money in my pocket, so that’s why I’m considering doing all of this before my lease ends in 23 months.

Since Honda Financial is not accepting lease buyouts from third party companies, my only option is to pay the ~$5,746 remaining in my lease term to end the lease and then say that I would begin financing, if I wished to sell my car to Carvana that is.

The residual value is $20,068, which is kind of unattractive when they quoted me an adjusted price of ~$29,500 at time of lease signing. Plus, I put $3000 down cash, and had a $3000 trade in credit, so really the cost of leasing this car for 3 years is essentially $15,000. To own it, it would come out to roughly $36,000 and that doesn’t even include the APR of the loan I would have to take out to finance the $20,068 at lease-end.

If I took Carvana up on their offer I’d walk away with roughly $13,500 to put down on another car, or perhaps I could trade it in to a dealer that has a car I want new if the price is right. Plus, I can begin financing now instead of leasing if I use the Carvana cash as a way to break my lease early, thus not affecting my credit in any major way.

I love my CR-V, but I feel ripped off by putting down a whopping $6,000 and then having monthly payments still be ~$9,000. Am I hung up on nothing and should I just keep the car? Or is my frustration warranted, and do you guys think I could save money in the long-term by paying the $5,700 I owe in remaining monthly lease payments and selling it?

2

If you buy it out right now, you get to pay sales tax on the balance. If you wait until you’re ready to move forward with a new vehicle, you can buy it, immediately sell it, and reclaim the sales tax amount, but it has to be done within 10 days of buying it out. I don’t see much advantage to buying it now.

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3

You’re right. I was planning to wait until I had another car that fits what I’m looking for lined up. I wouldn’t be buying out the car in full, I’d only be paying the lease payments off so that I can get around Honda’s lease return restrictions that are currently in place. If I found a car I like at a dealership that will pay off my finance deal, only then would I go through the process of paying the last 23 months of my lease payments off, pretend to finance the car so that I don’t have to return it to Honda, and then take the deal trade in deal to get $33,300, essentially getting me out of having to pay $35,000 for my current car in the long run.

Does that change your view on it? Or do you think I should still just let the lease run its course since I’ve already put down so much money? This market is the only time I could think about making a small profit on my lease, so that’s why I’m considering it so that I can get a new car with perhaps a lower overall cost than this car, where I clearly got hosed.

4

It doesn’t work like that. If you want to sell the vehicle to someone other than a Honda dealer, you need to purchase the vehicle out. Now, you could take out a used car loan to do that, but there’s no “pay only the remaining payments and then sell to whomever”.

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5

Right, sorry, that’s what I meant to say. I would be taking a loan out and then trade-in to a dealership that wanted my car so that they essentially pay off all of that for me, or at least roll the left-over cash into my down payment on a new car provided the overall cost would actually be lower than my current TCO on this lease if I were to decide to own it at lease end.

My apologies if I misunderstand the way some of these things work. This is my first car lease and I am trying to find the best outcome.

6

It is very unlikely that the dealer that’s going to give you the best deal on your new car is also going to give you the best deal on your current car. If you buy the lease out, there’s no reason to limit yourself to a trade in situation.

If you’re looking at going that route, it all comes down to minimizing your tax liability. Since you’re in California, there is a path to not having to pay sales tax on your buyout (which is going to be several thousand dollars if your buy out is $30k), but it involves you reselling the vehicle immediately after buying it out. You do not want to buy it out now and hold it for an indeterminate amount of time. It will cost you thousands of dollars to do so.

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7

I see. The lease residual value is $20,068, but I am sure that the tax on that will still be very high.

Again, I would only begin this process if I already found a car that fits my criteria and that comes in with an overall cost lower than my current buy-out for this lease , which is $20,068 for the end of lease buyout, and $15,000 for the 3 year lease term, roughly $35,000 overall if I decide to own.

~$13,500 net cash gain from trading in my car, which is in perfect condition, is a very large down payment on another potential future vehicle. I would be able to choose from a decent array of cars at this price range.

If I had Carvana / a dealership / whoever buy out the remaining loan balance on my car assuming that it is under that 10-day period, does this move make sense? That’s what I’m trying to discern. I know it has to be a quick move, but let’s assume I can accomplish this for now, hypothetically.

I know I would have to snatch up a car in under 10 days to avoid the tax. I am just trying to figure out if that’s better than paying $35,000 to keep my current lease at lease-end.

8

That’s your RV, not your current buyout price. You will pay taxes on the current buyout price.

It takes a lot of time to be able to sell it to Carvana/Carmax after buying out your car. After buying it out, you will need to wait for HFS to send you the title, then you still need to title it in your own name.

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9

On my lease contract it says “PURCHASE OPTION AT END OF LEASE TERM: I have a purchase option to purchase the lease at the end of the Lease Term for $20,068”

10

You aren’t at your lease term yet.

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11

That’s why I’d make advance payments to end the lease early like my post originally said. I only owe $5,700, I can pay that off if I’d be gaining $33,300.

12

Don’t do that. Just get the current pay off. It will a lower net cost than prepaying all the remaining payments.

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13

I don’t have to finish the lease payments to instead begin financing the buyout price? Really? That’s something I was unaware of.

14

When you request a buy out price, that’s the buy out price to buy it at the time you request it. The lease ends. It will be basically your residual value plus the remaining base payments, so no rent charge on the remaining payments.

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15

I see. So if I request a buy out price, it’s essentially rolling all my remaining base monthly payments into the residual value, which you claim may be a lower net cost than doing it in the two step way I was originally considering.

So with that in mind, assume I get pre-approved on a loan from a credit union for all of this, I ask for a buyout price, and the overall cost is indeed lower than my $33,300 value estimate on my current lease.

Does it make more sense for my wallet to take whatever remains of the $33,300 after selling/trading it in to a dealership and put it into a down payment on a new/used car? Or is all of this way too complicated, and should I just keep my current car and spend a TCO of $35,000 for a car that was originally valued at $29,000 as stated in my contract.

16

I think it largely comes down to what your goal is for a replacement. Are you looking to just minimize expenses? Are you looking for the best way into a new car? Etc

17

I am looking to minimize expenses overall. I feel buyer’s remorse for putting $6,000 down on this lease to still end up with a TCO that is higher than the value of the car at the time of purchase by roughly $6,000. It’s like I gave them free cash and a free car when I first signed this contract.

This market provides me with a unique opportunity - if done correctly, I could essentially wipe the slate clean by selling/trading in my lease. This won’t be true when my lease ends.

Also, I am not going to lie to you, I was considering perhaps splurging and getting my dream car - a used Tesla model 3, since I would be able to put roughly $13,000 down if all of this wheeling and dealing goes my way. In that case I wouldn’t mind paying extra since it is my dream car. But I won’t bore you with details about that haha. I’m just trying to figure out if this is a good way to get out of a really bad lease deal.

18

You’re probably much better off putting in an order on a new one today than to try to get a used one at basically the same cost, especially if you can push delivery off into next year and potentially get the new tax credit.

Also, keep in mind that a down payment on a lease has very little effect on the TCO. Other than avoiding a little bit of rent charge, all you’re doing is front loading your payments.

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19

Yes I realize this now. Originally I was trying to get the monthly payments down to a healthy price, but now I realize I shot myself in the foot if I decided to keep this car at the end. It is another thing that weighs heavily on my conscious lol. I should have looked at the TCO instead of just the monthly payments… Sigh.

Anyway, yes, I was considering the new Tesla route as well, but I am worried about the California 10 day thing with taxing my purchase if I don’t get a new vehicle before that time period.

In my case it may have to be used unfortunately. But if I did go with a Tesla, I would have potential rebates and incentives for driving an EV, so there is even more potential savings there I suppose.

20

You can end the sentence right there. Don’t put money down on a lease just to reduce the payment.

I read this all as a TCO concern, but you want to replace with something more expensive?

Even with CCFR (which is now half), CVRP, and (if you’re eligible) SCE, you’re going to vaporize all that transacting on a more expensive car.

There are many, many, many threads similar to your particular situation here. It might be worth search and spending some time reading through those.