Super confused about the $7500 and leases!

5452 Views 15 Replies 9 Participants Last post by eric_n_dfw, May 25, 2014

prismonix

Discussion Starter · May 23, 2014

How is the $7,500 tax credit used by the leasing companies such as US Bank and Ally?

From the Chevy national deal and and other posts here I understand that the savings are passed down to the leasee, but the math doesn't make sense to me.

For the example below I'm not considering any fees, taxes, etc just the basic numbers.
Approx $35,000 base price X 58% residual value = $20,300

If the car costs $35,000, and you subtract out the $7500, you are left with $27,000.

Keyes and Rydell are offering $5000 off invoice, so that comes to $22,000.

Cap $22,000 - Residual $20,3000 = $1700

$1700/36 = $47 a month.

Now I know a brand new car is not going to lease for $47 a month, but what am I misunderstanding here to get to that number?

Some other poster said it is the leasing companies money and not mine so I shouldn't have to worry about it, but then why advertise that the savings are being passed on?

For a real world example, I got a quote for a US Bank backed lease. The dealer had put the residual at 37% for a value of $12,948 and then added in the $7,500 to get to $20,448 which is 58% and some change.

From other websites the residual for the 2014 Volt is around 58% BUT that doesn't include the $7500 tax credit.

Where is the supposed $7500 savings in the US Bank lease?

Ally does something similar as well to come with a ~20K residual.

What am I getting wrong here!?

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llninja

· #2 · May 23, 2014

You are double counting the $7500 in your calculations. Read post number 16 in this thread

http://gm-volt.com/forum/showthread...l-That-cant-be-right&highlight=Lease+residual

And it explains it. US bank uses a lower residual then adds $7500. Everyone else builds their residual to account for the 7500. Bottom line is for your $35000 estimated car you have to make payments for the difference between $35000 and $20,300 (this number would vary between leases). So $15K (I'm rounding a bit) / 36 would be $416 per month. If you knock $5000 off the price, then $10k/36 is $277 per month. If you put $3k down then $7k/36 would be $194 per month. So US bank makes you feel like you got the full 7500, but they make it up in the 37% number. The others probably in reality only gave you $3-5k of the tax credit when they keep the rest. Obviously they are making money off of you unless future resale values plummet.

That said, I continue to say over and over again on these forums that I've never seen a lease that I liked. It's all a number game (it's a trap)

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llninja

· #4 · May 23, 2014

Joule said:
^^ that's correct, except it's not a trap unless you get tricked. Any 55-62% "residual rate" applied is an adjusted rate to include the $7500 tax credit. Here's another discussion thread (with a chart), before the sticker was lowered:

Question-about-application-of-7500-credit-to-lease

Excellent chart, so basically at each arrow, there is an opportunity for the dealer and the bank to pad a little and make money without you knowing it as you are looking for that "low" payment.

http://youtu.be/vYyx3CBSO_0

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llninja

· #12 · May 24, 2014

Paulacton84 said:
or if you don't pay $7500 in income taxes, (this credit does not roll forward I think). the leasing company can take the full value.

The leasing company can take the full value, but the leasing company won't really give you that full value of the tax credit.

I don't want to sound disingenuous, but if someone isn't earning enough to pay $7500 in taxes, they really should be looking at a much less expensive car unless they are retired and have a nest egg. I drove an old paid for Toyota for over 15 years and bought several used cars before I bought my first new car. And even then it had to be the deal of a lifetime ($34K car on a special clearance for $23K in March the following calendar year). If I look at just 10 years of vehicle expenses between someone who leases throughout the 10 years and me who borrows some money, pays the car off then pays for maintenance and saves the money not spent on a car payment, I come out way, way ahead. This also requires you to take better care of the interior and exterior of the car rather the treating it like a rental.

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llninja

· #15 · May 25, 2014

eric_n_dfw said:
This argument is sounding like a broken record around here, but let's kick that dead horse around some more.

If I take my MY2013 to the end of it's 24 month lease term (3 months from now) I will have paid $299.91 x 24 months = $7197.84 out of pocket, after which I have no equity nor liability (provided I don't beat it up).

If I had bought the car for the $39,020 negotiated price (which included lease rebates that the dealer passed to me, so I'm not sure I could have gotten that deal), less my $7,500 tax credit, I would have paid $31,520. In my area, I could probably get about $25,000 to sell my car today, a difference of $6,520. (This also assumes no interest paid on the car.)

My savings if I had bought it: $677.84, and that's assuming that in the next 3 months the used market for this car doesn't go down any when the 2015's hit the market.

Given the uncertainty of EV technology advances over 2 year terms and the benefit of not having to deal with selling it I consider that $677 a wash. (Also, in another 12 months I'll likely need to buy a new set of tires which would cost right around that much anyway.)

NOTE: I've left Tax, Title, Registration, Doc Fee's, etc. out of these calculations as they would be identical for buy or lease where I live. (we have to pay tax upfront on leases at purchase, not monthly)

All that being said, my next Volt may be a purchase since we now have an additional $2,500 rebate in TX which would be cut in half on another 24 month lease. Like others have said, you have to research the numbers and see how they apply to your situation. If we're all honest with each other, the most financially responsible thing would be to buy a reliable used car that gets decent mileage (be it EV, or not), we just all love driving a cool, new Volt!

How much of a down payment or a trade in did you put on the lease to get that monthly payment? That has to be part of the equation also. In my case my 2013 ended up $21K after rebates and tax credits mostly due to end of year deals and incentives. By leasing, you are stuck getting a new car after your lease runs out which gives the dealers the advantage as you need to drive something. By not being on a timetable, one can look for the deals of the decade.

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