Leasing and then Financing at BuyOut

[Oyiwaa]

Hello,

We are considering a car - we think we can afford the direct financing now, but with a slight stretch.  But we like the car and want to own it.

So, I am thinking of the unlikely (and probably unpopular) scenario of leasing for the first 3 years (to help with the lower monthly payment), and then buyiing out (financing) the car at the end of the lease.

Please, kindly share with me your thoughts about when such an approach makes the most sense - does it in my case? Is it better to swallow the monthly payments now for 6 years, or lease and then finance the same car later?

Thanks very much - Oy

[Creditaddict]

What kind of car?

i think basically you need to do the numbers, real rough but let's use my Kia as example since I think I can make it make sense:

sticker price: 29,000

$700 down

296 x 39 months

= 12,250 roughly

16,500 buyout at end

financed at today's good rates of lets say 4% ( remember car is going to be considered 4-5 model years old, maybe 3-4 if you get shorter lease so maybe you can get bit better with cu but let's say 4%

36 months = $487 ( don't think you will want to go 300 to 487 and pay 17,537 total plus your 12,250= 42,000

48 months = $373 = 17,883 + 12,250 = 30133 (not bad but 87 months)

or buy $29k at 2% for 72 months is 427 month and total 30,800

hope I did that right because I'm actually not believing the cost in my lease and then 48 month purchase scenario!! (Sorry, someone correct me if I messed that up!)

[CallPut]

The deal will vary and requires many factors to determine how it can be financially beneficial. First any lease should be negotiated just like you were to finance the vehicle. Meaning you should have a target price your will (purchase) or lease the vehicle at. For many vehicles today due to competition this can be below Invoice (yes, not MSRP) br $500 to $2000. This is possible due to dealer incentives and kickbacks for moving vehicles. Honda offers Flex Cash for example. The other major factors are the Residual (value of vehicle after lease) and money factor ( lease interest rate). Both values are manipulated by dealer/manufacturer based on promotions etc. Cars that have higher residuals (honda/Toyota ) tend to be cheaper leases since at the end of the term they still have higher value to be resold. To compete some manufactures will subsidize to compensate and allow their cars to be leased competitively but this is not as often. Lastly is the negotiation of the purchase price once the lease had expired which favorable once added to the total price paid during the lease would equal your target price. Based on these factors you may be able to get a decent deal considering the staged lease to finance approach but most likely will never be as cost effective as financing right off the bat. Realisticly the best financial step may be to but the car 1 year old with 10,000 miles and save thousands from the immediate depreciation. 

if you google "values and prices paid", there is a very popular automobile website that begins with Edmon that has a forum where consumers list the below invoice paid for all cars imaginable as well as lease negotiations and negotiating tips. Good luck!

[Hoya08]

@Creditaddict

 Slight miscalculation on 36 months.  The total payments for your 36-month scenario is $29,787 (17,537 + 12,250) and not $42,000.

If OP is interested in leasing, look into PenFed's Payment Saver Plan if  you qualify. 

[tooleman694]

Leasing and then financing is a way to really stretch things out to get the car you really want. But you will be paying for it forever.