Understanding LEASING

[danygenesis]

That's a good point. Cars like Lexus, Toyota and Honda taht are very reliable with a very good price retention almost all the time have equity and is better to sales them to a third party like CarMax or other dealer and get the price difference, that's money in your pocket.

 

[cane2025]

so i f i dont use all the miles in the contract then the remaining miles will give me a "credit" which i can only use towards the lease/ purchase of another car from the same dealer i originally got the car from. So i can not ask for the "credit" to be reimbursed if i don't get another vehicle.

 

[Mark_888]

so i f i dont use all the miles in the contract then the remaining miles will give me a "credit" which i can only use towards the lease/ purchase of another car from the same dealer i originally got the car from. So i can not ask for the "credit" to be reimbursed if i don't get another vehicle.

I don't believe anyone said that (unless I missed it).

What was said is that if your actual miles is a lot less than allowed under your lease, the actual value of the car may be worth more than the residual value that was originally estimated. Therefore you may be able to purchase the car at the residual value, then immediately sell to a company like CarMax for more than you paid for it (more than residual value).

In some cases, if the dealer wants the returned leased car to sell as a used car on their lot, then they may give you some extra value for under using the miles, if you buy or lease another car from them.

 

[cane2025]

The car manufacturer estimates the residual value based on the assumption that I will use all (or almost all) of my allotted 36K miles. When it comes time turn in my car and the current market value of my 25,000 mile Genesis is $2K higher than the residual, that is essentially $2K I can use towards my next vehicle as a down payment....whether that's a lease or a purchase.

I guess i miss understood. So in order to make a gain once i return the lease vehicle with a substantial amount of miles left in my contract, I would have to buy it then resell it to a third party at the current rate for the lower miles.

 

[GenesisAWD]

I guess i miss understood. So in order to make a gain once i return the lease vehicle with a substantial amount of miles left in my contract, I would have to buy it then resell it to a third party at the current rate for the lower miles.

Mark_888 put it pretty well in his last post.

Understand that the vast majority of people who lease will end up having little to no equity in their vehicle at lease's end. My posts about this aren't meant to get peoples hopes up or spread false promise. I'm just trying to inform people about a possibility that many don't realize.

Lets say you leased a new Genesis a year ago and the residual value that is on your contract is $20,000. What that means is that Hyundai is saying, at the end of your lease you can buy the car for $20,000 no matter what.

Now lets fast forward to 2 years from now when your 36 month lease is coming to an end. You look up on KBB and other sources that your Genesis is actually worth $23,000 as the market sits today. That means you have approximately $3,000 worth of equity in that car. Your options (as always with any lease) are to buy the car for the residual value or return the car and wash your hands of it. It would not be smart in this scenario to just give them the car for nothing. You've got $3,000 in equity built up.

If you want to buy or lease a different car then what you will essentially do is buy out your car for the $20,000 then immediately sell it to whatever dealership you're getting your next car from for $23,000. Using that $3,000 as down payment for your next vehicle.

Now if you are going to do that it's much easier than it sounds. The dealership will actually handle all the paperwork for you and you don't have to technically ever come up with $20,000 in financing.

 

[cane2025]

The dealership will actually handle all the paperwork for you and you don't have to technically ever come up with $20,000 in financing.

once i read the example it made much more sense. thank you. Can you expand on how the purchase and resell will work without "technically" coming up the cash/financing.

Again, thanks to everyone for sharing your knowledge. I'm sure someone other then me reading this post is learning something new.

 

[TroyK]

Troy that does happen on occasion. It's when the residual value of the car is considerable more than what the lease company can get out of the car at a wholesale auction. I suspect that's what happened in your friends case.

makes sense...i just didn't realize you could actually bargain over the lease end value with the leasing company.

 

[GenesisAWD]

once i read the example it made much more sense. thank you. Can you expand on how the purchase and resell will work without "technically" coming up the cash/financing.

Again, thanks to everyone for sharing your knowledge. I'm sure someone other then me reading this post is learning something new.

The dealership that you are buying or leasing your next car from wants to make it as easy as possible for you to get one of their vehicles. In order to do so they will bend over backwards to sell you one of their cars. I'm not exactly sure how the exact paperwork works, I just know that it's not a terrible process.

One of my previous leases several years ago had a bit of equity in it so I went through this process, that's how I know it's not too difficult to do. I'd imagine it is something along the lines of you signing over the right to buy your leased car to the dealership. They then buy it for the residual and put the pre-negotiated equity you have in it as down payment for your next vehicle that you're getting from them.

The nice thing about this is that it can work across any different manufacturers dealership. Its not like you have to sell it back to a Hyundai dealer to make it work. Ford/Chevy/Lexus/Cadillac/etc... dealers are all more than happy to take your Genesis off your hands at lease end if you have equity, and put you in one of their cars.

 

[linmk2]

This was going to be my next question. If I'm looking at getting the lowest payment possible then wouldn't a down payment be the way to go? also, if the cap cost is $0 then does that mean that the dealer or manufacturer are taking care of that?

Yes, putting additional money down does reduce the Capitalized Cost (simply put, the amount financed). However, one of the advantages of a lease is very little, if any out of pocket cash, as opposed to purchase. The Capitalized Cost can not be 0. Its the purchase price of the vehicle.

 

[linmk2]

One other aspect to the end lease process that a lot of people don't realize is to check for equity in your lease. When most people think of equity, they only think of equity in a purchased car but this is not true. Most people don't have much or any equity in their lease but it is possible and if you have it but don't use it then you're potentially throwing money down the drain.

I don't know if I'll have equity in the Genesis when I get to the end of my lease but I might. Reason is because under my lease I am afforded $12K miles per year. It's a 36 month lease so I can go up to 36,000 miles. Anything over 36,000 I have to pay a certain amount for each mile over. At my current rate I will probably only have around 22,000 to 25,000 on the Genesis when I turn it in. Because the residual value is an estimation set by Hyundai at the beginning of my lease that number may be higher or lower than the actual market value at lease end. The car manufacturer estimates the residual value based on the assumption that I will use all (or almost all) of my allotted 36K miles. When it comes time turn in my car and the current market value of my 25,000 mile Genesis is $2K higher than the residual, that is essentially $2K I can use towards my next vehicle as a down payment....whether that's a lease or a purchase.

There's no way of knowing if you'll have equity until closer to the end of your lease but it's just something that everyone who leases needs to at least be aware of the possibility so they don't waste that money.

An excellent point I forgot to mention. In every instance, I've been able to either sell my car outright and make a little money and trade the vehicle in before lease end and come out a little ahead. With the my Genesis, I'm not sure that will be possible. It will probably be the first lease car I will return at lease end.

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[Genentec]

basically u want to beat normal depreciation of the first 3 years.

and u benefit by not having to pay for tax based on the entire value of vehicle.

believe it or not a lot od people don't understand what a good lease is, and many get pretty reemed on a lease deal.

 

[nofaithineli]

The used car market has been exceptionally strong over the past several years leading to a lot of gains at lease termination for the lessee, dealer, or finance company for new vehicle lease contracts. If you are in the market for leasing a vehicle, you should never do so with the expectation of having equity at termination. Leases are almost always incentivized form of financing, meaning the OEM subsidizes the terms of the contract for no other purpose than to move metal (i.e., sell cars) by keeping customer payments low. For leases, the subsidy usually comes in the form of residual support. This means that the contractual residual (amount due by you at end of lease for option to buy the car) is increased above forward expectation of market value at termination. This reduces contractual depreciation which is the largest portion of customer monthly payment but it also means that residual in your contract is above what the OEM and/or ALG believe to be the expected future market value. The other way to reduce payment is by capital cost reductions (reduce the sale price and leave the residual at expectation) which can also be negotiated by knowledgeable consumers, keeping the payment the same while increasing the value of your purchase option at termination. LIFE TIP- Lease a car if 1) you want to keep payments low or 2) you know what you're doing. Don't lease a car banking on future equity.. chances are it won't be there if everything plays out according to forecast.

 

[GenesisAWD]

With the my Genesis, I'm not sure that will be possible. It will probably be the first lease car I will return at lease end.

Yeah, you very well may be right. Time will tell....it will be interesting to see what the market is for our cars in 2 more years.

The only things we can control that will have any effect on our potential equity in 2 years is mileage and keeping the car in as good of condition as possible.

 

[ksoze]

and u benefit by not having to pay for tax based on the entire value of vehicle.

That depends on the state being leased in. Some tax the full purchase price up front.

 

[BigTree]

Never, ever:

1. Lease a car with an expectation of "gaming" the system and having equity to play with at the end of the lease, thus reducing your overall cost of ownership during the lease period. The leasing companies are smarter than you at setting the residual though yes, sometimes OEM will subsidize the residual value in an effort to reduce lease costs to consumers and sell more cars. But it's like the sports books in Vegas...those guys make a living on setting the right odds and over time you will lose if betting against them.

2. Make a significant down payment on a lease. Yes, it would lower your payment, but if your car is totaled the day after you drive it home, you would lose that downpayment. Your insurance company's "Gap" insurance will pay the leasing company but will not reimburse you for the thousands you put as a downpayment.

3. Lease if you expect to drive significantly more than 15,000 miles per year.

4. Lease if you like to keep your cars for more than 4-5 years (see #1 above).

5. Lease if you have substandard credit. The leasing company may approve your application, but it will add substantially to that low money factor you were quoted by the F&I manager at the dealer.

6. Assume that the money factor (interest rate) quoted by the F&I manager is the lowest one offered by the leasing company, even if you have perfect credit. They will often add percentage points to the rate if they think they can get away with it. That's pure profit to the dealer. Always ask to see the dealer's rate sheet from the leasing company. Edmunds.com and other sites have current lease money factors, residuals etc. for all makes/models. Do your research!

Leasing is good if:

1. you like to have new cars every 2-3 years.
2. you have good credit.
3. you drive less than 15,000 miles/year. Even better if, like me, you drive 7,500 miles because it drops the payment even more!
4. You like driving cars that are always under warranty.

When you compare annual cost of ownership, leasing is generally less expensive than buying a car IF those last 4 points apply to you. An extra benefit is that you don't take any residual risk...the leasing company does. If you buy a car and its value plunges in the used car market 4-6 years later then you will take all of that hit.

Good luck!

 

[Jaeger]

Never, ever:

1. Lease a car with an expectation of "gaming" the system and having equity to play with at the end of the lease, thus reducing your overall cost of ownership during the lease period. The leasing companies are smarter than you at setting the residual though yes, sometimes OEM will subsidize the residual value in an effort to reduce lease costs to consumers and sell more cars. But it's like the sports books in Vegas...those guys make a living on setting the right odds and over time you will lose if betting against them.

2. Make a significant down payment on a lease. Yes, it would lower your payment, but if your car is totaled the day after you drive it home, you would lose that downpayment. Your insurance company's "Gap" insurance will pay the leasing company but will not reimburse you for the thousands you put as a downpayment.

3. Lease if you expect to drive significantly more than 15,000 miles per year.

4. Lease if you like to keep your cars for more than 4-5 years (see #1 above).

5. Lease if you have substandard credit. The leasing company may approve your application, but it will add substantially to that low money factor you were quoted by the F&I manager at the dealer.

6. Assume that the money factor (interest rate) quoted by the F&I manager is the lowest one offered by the leasing company, even if you have perfect credit. They will often add percentage points to the rate if they think they can get away with it. That's pure profit to the dealer. Always ask to see the dealer's rate sheet from the leasing company. Edmunds.com and other sites have current lease money factors, residuals etc. for all makes/models. Do your research!

Leasing is good if:

1. you like to have new cars every 2-3 years.
2. you have good credit.
3. you drive less than 15,000 miles/year. Even better if, like me, you drive 7,500 miles because it drops the payment even more!
4. You like driving cars that are always under warranty.

When you compare annual cost of ownership, leasing is generally less expensive than buying a car IF those last 4 points apply to you. An extra benefit is that you don't take any residual risk...the leasing company does. If you buy a car and its value plunges in the used car market 4-6 years later then you will take all of that hit.

Good luck!

Great post. Particularly your first point.

 

[danygenesis]

After BigTree post there is no much to add. If you decide to lease because you want to change your car in a short period of time and you are not going to drive many miles a year then,
Search at Edmunds.com for the MF and Residual Value for the miles you are going to drive annually plus any cash back for your brand and model year.
Negotiate to lower the sticker price as much as you can.
Get all incentives and rebates for your car.
Check the dealer is applying the lowest MF (you already know it from Edmunds)
Check the dealer is applying the number of miles you want (regularly 10K, 12K or 15K)
Do not give any down payment, just pay the paperwork from tag, title and dealer fees at the most.
Do not accept any Prepaid Maintenance or similar prepaid contract offered from the F&I when signing the papers.
Enjoy your car for three years and when the lease is finished get a new one!

Just a little help,
As of June/2016 here you have the numbers from Hyundai at USA

2016 Genesis Sedan 3.8 Ultimate AWD
12k/36 months RV 57%, MF 0.00035
10k/36 monts RV 58%, MF 0.00035

2016 Genesis Sedan 3.8 Ultimate RWD
12k/36 RV 56%, 0.00017
10K/36 RV 57%, 0.00017

All of them have $3500 lease cash incentive by Huyndai

 

[cane2025]

I see everyone states NOT to get any add on from the F&I office but is GAP a good item to get on a new lease?

 

[Jaeger]

Somebody correct me if I'm wrong, but if the car is totalled (as opposed to damage that is repairable) doesn't that terminate the lease? If so I'm not sure what role gap insurance would play.

 

[danygenesis]

Almost all leases nowadays have GAP waiver, Hyundai is not an exemption, if the car is totaled you don't need to pay the difference between Actual Value and bank debt, just walk away and get a new lease but if you gave a a down-payment you wont get any reimbursment either, that's the reason many members advised not to give a down-payment in a lease.