It looks like I can not reply to old posts, so I am starting a thread to ask for clarification. Please let me know if I am wrong
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CYR = RATE(term, adj. cap, base monthly payment excluding tax, - RV, 1)
ALB = PV(RATE, # of payments made, - base monthly payment excluding tax, -RV,1)
RATE or CYR is a monthly rate since payments are monthly and interest is compounded monthly.
RV = Residual Value
Lease Balance = ALB as reported by your fund provider. If there is a disparity of more than a few dollars, then something is very wrong. Assumes all payments are made on time.
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The questions
The ALB is the money I need to pay to end the lease and purchase the car. Yes?
Are there other fees and taxes I need to pay on top of ALB? How do I compute those properly?
Is single pay lease typically better for buyouts like this? Why?
If I chose to do this for a single pay lease, how do I compute this?
Finally, 2 question that would provide extra context to help me understand the above.
Are monthly taxes computed based on the base monthly payment or the base monthly payment + interest charge. Example : Suppose my monthly payment is
100 depreciation and 20 rent charge
Suppose my tax rate is 10%. My tax should be 12 yes?
The rent charge is essentially the interest computed from MF into APR and so on yes?
Any reason why I can’t add RV + unpaid depreciation to get PV? This is probably not the right way to compute it but I am trying to understand intuitively why this does not arrive at PV?
You’ll need to pay the buyout fee (listed in the contract), any registration/title transfer fees, and sales tax on the buyout (state dependent). In a few states, you may need to do the buyout through a dealer, in which case you can expect to have to pay a doc fee too.
Depends on state tax situations, but generally if you’re doing an immediate buyout, it won’t make much difference.
If a dealer offers X leasecash and I immediately buyout the lease to purchase the car, I should be able to capture 100% of the leasecash as a discount yes?
If not why not? and how can I compute how much i lose from the lease terms?
If I do a single pay lease would that help me capture more of the lease cash? And does it make a difference if the MF changes with the sibgle pay lease?
Do leases have clauses that prevent ab immediate buy out? Those should be in the lease contract yes?
Finally will the lease spell out the ALB at 0th and 1st month before I sign? If not how do I figure out this sum? I am hoping this is simpler than computing it for future month X.
Generally speaking, rebates are used as cap cost reductions that reduce your monthly payments. When you buy out a lease, you pay remaining payments minus remaining interest, so effectively, just paying the remaining payments sans interest is effectively how you get the extra discount.
People used to do this a lot when i4’s and iX’s first came out if they wanted to buy them.
I’m sure the resident math-lete will chime in and explain how I am wrong in some minor way, but generally speaking what I am saying is true for most brands.
Other ways to maximize in a scenario like this would be if the brand offers an acquisition fee waiver in exchange for a money factor increase, as you’ll never be paying that interest anyway.
If you’re buying out the vehicle within the first 30 days or so, it’s cheaper to do a single pay lease. The lease cash should be used as a cap reduction which will lower the single pay amount so that you capture all of the lease cash. Also, there is a single pay discounted MF in most cases. Under no circumstances should you capitalize (finance) any fees.
Never saw any such clauses.
Yup.
No. However, the lease agreement does provide the methodology for computing the ALB.
IF you buyout within 30 days, your ALB is…
ALB = [ (Adj. cap cost - single pay amount (excluding tax)) x (1 + CYR/12)^1 + POF] x (1 + r) + any applicable fees
POF = Purchase Option Fee
r = sales tax rate (if applicable)
CYR = Constant Yield Rate referenced in most lease contracts
You can use the Excel RATE function to determine the CYR…
CYR = 12 x RATE(term, 0, -ILB, RV, 1)
ILB = Initial Lease Balance = Adj. Cap Cost - Single Payment Amount (exclu. tax)
Calculating the ALB after t months have elapsed is a piece of cake…
It also depends on the state. Some states tax incentives. The Ioniq 5N I just leased had $16500 but FL slaps a sales tax on that incentives (which cost me $1500) plus $650 lease acquisition fee. In realty you are probably capturing 80-90% of the incentive.
Do you mind sharing which car you are interested in?
Depending on the manufacturer you may not necessarily want to buy out the lease right away. For example, BMW iX leases have subsidized interest rates. So if you are only paying 1-2% interest on your BMW lease balance, it doesn’t make financial sense to pay it off until near the 36 month mark!
You are way overthinking this. It is pretty simple. If you plan to immediately buy the vehicle just to capture the lease cash, negotiate the biggest discount possible. This may include agreeing to a higher money factor in exchange for a bigger discount. After you sign the lease and drive away, wait a few weeks for the bank that owns the car to set up your online lease account. Once that is done, contact the bank and get your payoff. It will be very close to the total amount you financed via the lease which included all the incentives. There will be a little bit of interest plus the buyout fee included in the payoff. Send the bank a check and the vehicles is now yours. You will likely incur additional fees and taxes to re-register the vehicle in your name depending on how your state DMV works. Specifically you may now owe tax on the total value of the vehicle if these taxes were not collected when you signed the lease. It really depends on your state. Some states only tax your lease payment during the term of the lease. Others charge full taxes upfront at start of lease.
Is a single pay lease cheaper than immediate buy off even if the single pay lease does not reduce the MF?
I am also running into a problem where I asked the dealer to give me a single pay lease and they say no such thing exists! huh?! Any advice on how to deal with that?
If you owe taxes depends on your state, but generally yes, you will owe taxes.
You’ll also have to pay title transfer/reg fees.
Doing a one pay and then immediately buying it out will be marginally less expensive, but you’re talking a few dollars.
If the bank offers a one pay and the dealer says they have never heard of it, what they’re really saying is “we don’t know how to do it without screwing it up, but we don’t want to look like idiots, so we are going to blame it on the bank”.
It’s best to run the numbers and see. If the MF (buy rate) is already low to begin with, it probably won’t matter much. It’s rare that the MF isn’t discounted for a single pay. At least, that’s been my experience.
I would tell them that they do exist and I’m very sorry that you don’t know this… I’ll take my business elsewhere… thank you very much.
I refuse to favor stupidity with my business and have no problem slamming them for their ineptness.
then why is are some dealers giving me a 51% residual and others giving me 67%?
If different dealers can choose a different residual, then the same dealer can also choose a different one? What am I missing?
If different dealerships are giving you a different RV for the same model and trim line (I think Audis can have different RVs for different trims w/i in the same model line), the dealerships might using different banks.
With that much of a span, it’s likely one is quoting you 24 months and another 36 or something like that.
Beyond that, under no circumstance should you be talking numbers with a dealer without already knowing what the residual value is (along with the rest of your target deal, which includes all the lease program)
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