This is an article that is not with an ADDY to locate. So sorry for not posting an ADDy to read this.
I have always had questions about leasing and was told YOU HAVE TO BUY AT THE CONTRACT PRICE???
This article counters that.... hope this can be helpful....................R
When you chose to buy a car at the end of the lease, does the DEALERSHIP sell it to you at the current value or at the price you will owe if you bought the car from the beginning (instead of leasing)?
When I met my wife she was leasing a RAV4 on a standard 3 year lease. The car was $24,000 or so new, and the total of all payments (downpayment + monthly) was probably around $14,000 (I don’t remember exact numbers 17 years later). The buy out on the contract was $11,000.
At the end of the lease I wanted to buy the car. The first thing they did was point to the buy out price. I countered with the black book price, which is what they were going to get at auction if I walked. That was around $8,000. They again countered with the buy out and I explained that since I was under no obligation to buy the car that price in the contract was meaningless, and it would be best to quit wasting our time talking about it. I knew that if I walked they got $8,000 for the car, so all cards were face up on the table. Now the ball was in play.
It turns out they wanted to get financing for me, where they would take another bite of this apple. They were on a computer at this point, and basically they were doing the old “squeeze this end of the balloon and the other end gets bigger trick”. If I’d take a higher interest rate, I’d get a lower price. Unfortunately for them, I’m good with math.
So, I took a high interest rate with no down payment and a long term and got the car for not much more than $8000. I then paid it off a month later. Basically, they got a bonus from the bank for “suckering” me into the higher interest rate, and the bank got screwed, probably to the tune of a grand.
Oh well.
That’s how you negotiate it. Get the black book price, which is the price at auction. That’s what they’ll get if you walk. That’s where you start your negotiation.
Update: I should mention that I didn’t negotiate with the dealership. I have no idea why anyone would think that since the car was owned by the lessor at that point. I probably screwed up by saying the bank got screwed, I realize now I was actually negotiating with the lessor who owned the car at that point. The lessor was also a lender, so there’s no third-party bank involved at that point.
I keep seeing people below bellowing “That’s not how it works! You have to pay the buy-out price in the contract if you want to buy the car!”
No. You don’t.
I’m putting this here instead of replying to everybody below who doesn’t understand this. You are under no obligation to buy the car at the end. Them putting a buy-out number in the contract is meaningless since you aren’t obligated to buy it. You can always just give them the car.
So, give them the car, then offer to buy it back at a reasonable price which involves a much simpler process for them.
If they take possession, they’re going to take it to auction and get a well-known price for it, which is the Kelley Black Book price (not “Blue Book”). You can easily obtain all the information related to this. Since their other option is known to you, negotiating is easy. They’ll get $x at auction, minus a bunch of fees and transport costs and the like, so if you offer just $x you’re already doing them a favor.
(I’m teaching you how to negotiate, hang in there - especially those of you who are drooling about the “residual” or “buy-out price” below)
Now, on your side there are costs, too. If you just give the car back you probably have to go get another one. That takes time, probably money. These costs are far more difficult to really quantify, but they’re real. I don’t enjoy car shopping, plus I already have this car that I liked a few years ago and I know it well and I’ve maintained it to perfection, etc. There’s value in all of that, but it’s impossible to really pin an exact dollar value on it.
Back to the lessor - they also have a big incentive to keep people thinking that they have to pay the buy-out price. See below. They would much rather get the buy-out at thousands more, and they want people to think they have to pay it.
Ultimately, the lessor and you will have to come to a price that you both like. If you can’t, then walk away and go get another car.
I don’t suggest leasing, anyway. My wife did it for a really good reason - she was going to leave the country after a few years, anyway, so it just made sense. We just buy cars for cash now.
I have always had questions about leasing and was told YOU HAVE TO BUY AT THE CONTRACT PRICE???
This article counters that.... hope this can be helpful....................R
When you chose to buy a car at the end of the lease, does the DEALERSHIP sell it to you at the current value or at the price you will owe if you bought the car from the beginning (instead of leasing)?
When I met my wife she was leasing a RAV4 on a standard 3 year lease. The car was $24,000 or so new, and the total of all payments (downpayment + monthly) was probably around $14,000 (I don’t remember exact numbers 17 years later). The buy out on the contract was $11,000.
At the end of the lease I wanted to buy the car. The first thing they did was point to the buy out price. I countered with the black book price, which is what they were going to get at auction if I walked. That was around $8,000. They again countered with the buy out and I explained that since I was under no obligation to buy the car that price in the contract was meaningless, and it would be best to quit wasting our time talking about it. I knew that if I walked they got $8,000 for the car, so all cards were face up on the table. Now the ball was in play.
It turns out they wanted to get financing for me, where they would take another bite of this apple. They were on a computer at this point, and basically they were doing the old “squeeze this end of the balloon and the other end gets bigger trick”. If I’d take a higher interest rate, I’d get a lower price. Unfortunately for them, I’m good with math.
So, I took a high interest rate with no down payment and a long term and got the car for not much more than $8000. I then paid it off a month later. Basically, they got a bonus from the bank for “suckering” me into the higher interest rate, and the bank got screwed, probably to the tune of a grand.
Oh well.
That’s how you negotiate it. Get the black book price, which is the price at auction. That’s what they’ll get if you walk. That’s where you start your negotiation.
Update: I should mention that I didn’t negotiate with the dealership. I have no idea why anyone would think that since the car was owned by the lessor at that point. I probably screwed up by saying the bank got screwed, I realize now I was actually negotiating with the lessor who owned the car at that point. The lessor was also a lender, so there’s no third-party bank involved at that point.
I keep seeing people below bellowing “That’s not how it works! You have to pay the buy-out price in the contract if you want to buy the car!”
No. You don’t.
I’m putting this here instead of replying to everybody below who doesn’t understand this. You are under no obligation to buy the car at the end. Them putting a buy-out number in the contract is meaningless since you aren’t obligated to buy it. You can always just give them the car.
So, give them the car, then offer to buy it back at a reasonable price which involves a much simpler process for them.
If they take possession, they’re going to take it to auction and get a well-known price for it, which is the Kelley Black Book price (not “Blue Book”). You can easily obtain all the information related to this. Since their other option is known to you, negotiating is easy. They’ll get $x at auction, minus a bunch of fees and transport costs and the like, so if you offer just $x you’re already doing them a favor.
(I’m teaching you how to negotiate, hang in there - especially those of you who are drooling about the “residual” or “buy-out price” below)
Now, on your side there are costs, too. If you just give the car back you probably have to go get another one. That takes time, probably money. These costs are far more difficult to really quantify, but they’re real. I don’t enjoy car shopping, plus I already have this car that I liked a few years ago and I know it well and I’ve maintained it to perfection, etc. There’s value in all of that, but it’s impossible to really pin an exact dollar value on it.
Back to the lessor - they also have a big incentive to keep people thinking that they have to pay the buy-out price. See below. They would much rather get the buy-out at thousands more, and they want people to think they have to pay it.
Ultimately, the lessor and you will have to come to a price that you both like. If you can’t, then walk away and go get another car.
I don’t suggest leasing, anyway. My wife did it for a really good reason - she was going to leave the country after a few years, anyway, so it just made sense. We just buy cars for cash now.