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Old 05-15-06, 11:43 AM   #1
tragic22
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Default Question about leasing

Let me just say that I've never leased a car so I have no knowledge of how it works. Right now I'm interested in leasing an IS 250 for 36 months then possibly buying it at the end of my lease. The reason I'm doing this is because over the next couple years I dont want too high of a monthly payment because I'll need my money for other things I have going on but by the time the lease is up I should have plenty of money on the side. What i'm wondering is how exactly does it work when you lease and buy the car at the end of it?

I used the leasing calculator on the lexus website for this
Lets suppose the cost of the car is $33000
I put $5000 down which leaves me with $28000
I pay $389 /month for 36 months
After the 36 months I would have paid $14004 towards the car
So $28000 - $14004 = $13996

Supposing that I dont go over my mileage limit would all I have to pay at the end of the lease be the $13996 or is it more or less or what???? I really dont know how it works.
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Old 05-15-06, 11:49 AM   #2
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Your monthly payment will be a bit higher because you pay taxes monthly (lease = glorified rental); if you decide to buy it out, you'll pay the residual + tax on the residual amount. When you sign a lease, they will tell you what the residual value will be at lease end since it's predetermined by your down payment, lease term, and money factor.

Most banks will offer you the opportunity to end the lease early (about six months early or so) and begin the loan then. If you opt for this, the residual will go up based on how many months you forgo on the remainder of the lease.
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Old 05-15-06, 12:07 PM   #3
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Oh so you're allowed to take out a loan to pay off the residual if you so desire? So all in all you're not really losing much more money if you lease to buy than if you just take out a loan right off the bat? The only place I see that you might lose more money leasing is with the fact that you have to pay taxes again on the remaining amount and with the fact that you have a slightly higher interest rate for leasing than you do for loans. So I'd probably end up paying something like $4000 more leasing, or at least thats what I'm seeing. Somebody tell me if I'm wrong.
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Old 05-15-06, 12:42 PM   #4
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Figuring out leases can get complex fairly quickly. If you do a $5,000 cap reduction on a $33,000 vehicle, the residual doesn't change (you're basically pre-paying the rental charge and depreciation charge up front). Currently with 2IS, residuals on a 36 month lease on 36,000 miles allowed is about 62%. After your lease ends, the option to purchase the car is going to be around $20,460. While, yes, you paid $14,004 total in lease payments (all numbers are before taxes) plus $5000 for a total of $19,004, technically NONE of the monies you paid actually went towards the car. Part of your payment is the actual "lease" or "rental charge" (like the other poster said, glorified rental), the other part of it is what's called the depreciation fee. If anything, the actual amount you're paying against the car is the "depreciation fee".

The price difference between leasing a car and financing a car can very quite a bit. Assuming you buy the car outright at the end of the lease in cash and decide not to finance the residual amount, you'll come pretty close to even. If you decide to keep the car and finance the residual, then it can get quite expensive considering how much finance rates have inched up lately and probably so in the coming years.

(Please note, ALL numbers are approximate).

So for example above, $19,004 + $20,460 residual is $39,464. That would be the cost of the car in the end if you paid residual with cash at the end of the lease.

If you financed the car for 36 months @ 7.5% with a $5K downpayment, you're looking at a total cost of around $36,400 before taxes. (But your monthly payments would be around $870/month plus taxes).

If you financed the car for 60 months @ 7.5% with a $5K downpayment, you're looking at a total cost of around $38,670 before taxes.

Now, let's say at the end of the lease you want to keep the car but finance the residual. Assuming the interest rate stays the same, you finance $20,460 for 36 months @ 7.5% with no downpayment, you're looking at a total cost of $19,004 + $22,920 for $41,924. $20,460 for 60 months @ 7.5% with no downpayment, it's going to cost you $43,610 in the end.

The real comparison is the 3-year lease with the option to buy the car in cash at the end for the residual versus financing a 60 month term is where you need to think about. Doing the former costs you about $1,000 for the option to just "give the car back".

So worst case scenario, where you lease the car and finance the residual for 60 months... over a period of 8 years (3 year lease, 5 year finance), the bank makes over $10,000 off of you.

Hope I've thoroughly confused everyone now.

Cheers,
Kermee
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Old 05-15-06, 01:08 PM   #5
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Quote:
Originally Posted by Kermee
Figuring out leases can get complex fairly quickly. If you do a $5,000 cap reduction on a $33,000 vehicle, the residual doesn't change (you're basically pre-paying the rental charge and depreciation charge up front). Currently with 2IS, residuals on a 36 month lease on 36,000 miles allowed is about 62%. After your lease ends, the option to purchase the car is going to be around $20,460. While, yes, you paid $14,004 total in lease payments (all numbers are before taxes) plus $5000 for a total of $19,004, technically NONE of the monies you paid actually went towards the car. Part of your payment is the actual "lease" or "rental charge" (like the other poster said, glorified rental), the other part of it is what's called the depreciation fee. If anything, the actual amount you're paying against the car is the "depreciation fee".

The price difference between leasing a car and financing a car can very quite a bit. Assuming you buy the car outright at the end of the lease in cash and decide not to finance the residual amount, you'll come pretty close to even. If you decide to keep the car and finance the residual, then it can get quite expensive considering how much finance rates have inched up lately and probably so in the coming years.

(Please note, ALL numbers are approximate).

So for example above, $19,004 + $20,460 residual is $39,464. That would be the cost of the car in the end if you paid residual with cash at the end of the lease.

If you financed the car for 36 months @ 7.5% with a $5K downpayment, you're looking at a total cost of around $36,400 before taxes. (But your monthly payments would be around $870/month plus taxes).

If you financed the car for 60 months @ 7.5% with a $5K downpayment, you're looking at a total cost of around $38,670 before taxes.

Now, let's say at the end of the lease you want to keep the car but finance the residual. Assuming the interest rate stays the same, you finance $20,460 for 36 months @ 7.5% with no downpayment, you're looking at a total cost of $19,004 + $22,920 for $41,924. $20,460 for 60 months @ 7.5% with no downpayment, it's going to cost you $43,610 in the end.

The real comparison is the 3-year lease with the option to buy the car in cash at the end for the residual versus financing a 60 month term is where you need to think about. Doing the former costs you about $1,000 for the option to just "give the car back".

So worst case scenario, where you lease the car and finance the residual for 60 months... over a period of 8 years (3 year lease, 5 year finance), the bank makes over $10,000 off of you.

Hope I've thoroughly confused everyone now.

Cheers,
Kermee
Wow, I wasnt even looking at it like that! $10000 is a lot of money to lose. What it looks like the best thing to do for me is to just try to save up at least a good $10000-$12000, take out a 60 month and find a nice used IS for 30k so I can have my monthly payments in the upper 300s too lower 400s range.
The only real bad part about it is that obviously I'll have to wait longer to get my 06 IS 250 and by the time I do the 2007's will be out.
Man you just messed up my plans...
but thanks anyway. At least now I know.
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Old 05-15-06, 01:26 PM   #6
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Quote:
Originally Posted by tragic22
Wow, I wasnt even looking at it like that! $10000 is a lot of money to lose. What it looks like the best thing to do for me is to just try to save up at least a good $10000-$12000, take out a 60 month and find a nice used IS for 30k so I can have my monthly payments in the upper 300s too lower 400s range.
The only real bad part about it is that obviously I'll have to wait longer to get my 06 IS 250 and by the time I do the 2007's will be out.
Man you just messed up my plans...
but thanks anyway. At least now I know.
I didn't mean to depress you or scare you. I just wanted to make sure you understand what you're getting yourself into in certain scenarios. Unfortuantely, there's many ways to spin this and a lot of sales people will do so. That's how many people get themselves into trouble if you're not armed with this information.

It amazes me how many posts I see on Craigslist that a person is selling their 2005 or 2006 vehicle because they understimated the financial strain when buying a vehicle. In the Seattle area's Craigslist alone, I see 2-3 a day when I browse the auto-classifieds stating they can no longer afford to keep the car.

For example, $10,000 is a lot of money. But that's over the course of 8 years. 365 days in a year makes it 2920 days so $10,000 into 2920 days is $3.42/day. That's one spin. But that is on an 8 year commitment...

Also, seeing you're in NY also, you should look/search for the thread on 2IS insurance rates...

Cheers,
Kermee

P.S. And yes for the nitpicky people, I realize I didn't take into account leap-years. Add the two days yourselves.
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Old 05-15-06, 02:16 PM   #7
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a couple of helpful notes:

(1) you don't pay tax on leasing twice. you only pay tax on the portion you are "using", which is the negotiated price minus the residual. if you buy it out at the end, you pay the tax on the residual. there is no double taxation (at least not in California)

(2) like with any other loan, home, auto or personal, the longer you finance anything, the more interest you are paying to the bank. so if you lease for 3 years and then you finance the residual for 5 years (8 years financing total), of course the bank is making much more off you than a regular 5-year finance deal.

(3) leasing cost consists of depreciation cost + financing cost. the depreciation is like part (1) above, where you are paying for the cost of the car that is being used, and financing cost is like the interest you are paying to drive a 33k car off the lot. since you are getting the benefit of having a nicer car rather than just buying a car that half that price, you have to pay a finance charge on that value.

(4) leasing and buying are fairly comparable nowadays if you plan accordingly. for instance if you buy the car now and finance 5 years and then sell in 3 years, you probably would have been better off leasing since you paid tax on it already. on the other hand, if you KNOW 100% that you want to keep the car for more than 3 years, you really are better off buying, or if the payments are too high for you, do your original plan which is lease for 36 months and consider the buyout residual the "balloon payment" on that loan (just like Kermee described earlier). you can crunch the numbers with various calculators online.

(5) you should also compare the rates you can get for buy vs. lease. sometimes when the model life matures, lexus can offer pretty attractive financing and leasing rates. of all the times i've leased, the rate is lower than if i had financed. that is because lexus leasing is very profitable for dealers since they are getting very reliable cars back at 36,000 or 45,000 miles and making them CPOs and then selling them again at a profit. so dealers can make 2 profits on 1 car. of course not all mfrs do this; lexus dealers do it because 36k or 45k miles is nothing on a lexus...

anyway, good luck with your decision, hope it works out for you!
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Old 05-15-06, 06:03 PM   #8
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I was quoted $425/month for 36 mos for a lease on IS250 AWD with a $3825 refundable security deposit for 12,000 miles/yr.

The price of the IS the sales person calculated was $34,774.20
I don't exactly know what packages/options was included in the car because my uncle got me this quote in New Jersey Ray Catena. Judging from the price, however, I don't think there is any extra packages...

The lexus of manhattan sales person from whom my dad got his RX300 quoted us 470/mo with $2500 down for 36 mos. same specs as above. He guaranteed us that there will be no charge at the end of the lease for minor scratches, etc. To me that sounds kind of shady and desperate to sell the car...

Any of the two sounds like a fair lease?
Please advise. thanks.
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Old 05-16-06, 08:54 PM   #9
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Alright I've got two possible very stupid questions about leasing.

If I buy the car cash at the end of my lease will I still have to pay for going over the limit on my mileage. Reason being if I do lease the car I know I will be paying for it cash at the end of my lease so I may just run up the mileage how I see fit.

and

Can you only lease brand new cars. Like if I wanted to lease an 06 IS 250 around Novemer of this year but the new 07's are already out, can I do still lease the 06?


I told you they were stupid questions.
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Old 05-16-06, 09:38 PM   #10
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Quote:
Originally Posted by tragic22
Alright I've got two possible very stupid questions about leasing.

If I buy the car cash at the end of my lease will I still have to pay for going over the limit on my mileage. Reason being if I do lease the car I know I will be paying for it cash at the end of my lease so I may just run up the mileage how I see fit.

and

Can you only lease brand new cars. Like if I wanted to lease an 06 IS 250 around Novemer of this year but the new 07's are already out, can I do still lease the 06?


I told you they were stupid questions.
(1) no, you don't have to pay excess mileage or wear and tear if you buy it out.
(2) yes, you can lease whatever model year you like. there will probably still be a few new 06's around in the fall
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Old 05-17-06, 11:20 AM   #11
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Quote:
Originally Posted by lexuslover
(1) no, you don't have to pay excess mileage or wear and tear if you buy it out.
(2) yes, you can lease whatever model year you like. there will probably still be a few new 06's around in the fall
You can also lease used/CPO cars, but that is less common. Still, it can be done.
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Old 05-18-06, 01:16 PM   #12
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You can also in most cases use multiple security deposits to lower your money factor (lease interest rate essentially), and in most cases you can use up to 9 security deposits (security deposit equal to your monthly payment rounded up to the nearest $25 increment and use that money at the end of the lease towards your purchase. Limitations depend on the state though!
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Old 05-24-06, 10:34 AM   #13
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Originally Posted by Toyota_F1
You can also in most cases use multiple security deposits to lower your money factor (lease interest rate essentially), and in most cases you can use up to 9 security deposits (security deposit equal to your monthly payment rounded up to the nearest $25 increment and use that money at the end of the lease towards your purchase. Limitations depend on the state though!
Can somebody explain to me how does it work when you do multiple security deposits? Is it something where you have to agree to pay multiple deposits at specific dates throughout your lease or do you just give them how much ever money you want at whatever dates you want as security deposits? Also do each individual deposit reduce your money factor as you pay them?
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Old 05-24-06, 11:33 AM   #14
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Quote:
Originally Posted by tragic22
Can somebody explain to me how does it work when you do multiple security deposits? Is it something where you have to agree to pay multiple deposits at specific dates throughout your lease or do you just give them how much ever money you want at whatever dates you want as security deposits? Also do each individual deposit reduce your money factor as you pay them?
1. Yes.
2. You basically pre-pay up to 9 security deposits, each deposit being the amount of your monthly lease. So this is cash out-of-hand upfront.
3. Yes. Up to 9.
4. Yes.

These deposits are refundable at the end of your lease unless you get nickel and dimed which is rare for Lexus or unless you went WAY above your allowed mileage.

Cheers,
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Old 05-24-06, 01:37 PM   #15
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Quote:
Originally Posted by Kermee
1. Yes.
2. You basically pre-pay up to 9 security deposits, each deposit being the amount of your monthly lease. So this is cash out-of-hand upfront.
3. Yes. Up to 9.
4. Yes.

These deposits are refundable at the end of your lease unless you get nickel and dimed which is rare for Lexus or unless you went WAY above your allowed mileage.

Cheers,
Kermee
The way I'm seeing it is if the money is refundable and it reduces your monthly payments then there is no reason to ever put money down if you can put that as same money as a security deposit. Is that safe to say?
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Old 05-24-06, 01:37 PM
 
 
 
 
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