CAP COST QUESTION

[Luscher]

I leased a car through toyota financial back in 2011. In April 2014 my lease will be up and I will be buying the car.

MSRP: $21,000

Cap cost: $5,000

Monthly payment total over 36 months: 10,200

So my question is about cap cost reduction. Does the cap cost just lower my monthly payments or will that be factored into how much I owe at the end of my lease.

Will I owe: 21,000-10,200? or 21,000-10,200-5,000?  (including cap cost)

Thanks

[StartingOver10]

I found a link that explains cap cost as it relates to vehicle leasing: http://www.leaseguide.com/glossary/capitalized-cost.htm 

It looks like the cap cost is the same as a down payment if you had financed a vehicle. It is part of the money paid up front when you lease. Read the above to get a better explanation.

The rest of the site is a good read too.  

[Luscher]

Yea I've read so many articles and they all say the same thing. nobody actually says that it counts at lease end though.

[dt33]

The cap cost is simply your "sales price" and it's completely irrelevant to what you will have to pay if you decide to inforce your option of purchasing your lease. You are only obligated to pay the residual amount which is what TFS determines and guarantees the vehicle will be worth at your maturity date. This figure is disclosed upfront and can never be changed once the contract is inforce. Also, keep in mind that you do not have to wait until the actual maturity to inforce your options, although it is in most cases recommended to fulfill the lease term. In my experience in the auto industry, I have found that 6 months before the actual maturity date, is fairly a good time to start exploring your options. I am currently a finance director at a Toyota dealership so feel free to reply with any other questions. I hope this helps!

[Luscher]

My question is more towards the cap cost reduction. the sticker price was around 21k with a monthly payment of 280 for 36 months. i put down 5k as a cap cost reduction. the residual on the paper work says around 12k so in reality if my math is right, if i keep the car ill be paying over 27k?

[dt33]

To answer your question simply, you are correct. The cap cost reduction is consisted of any equities (i.e., down payment, positive trade equity, rebates, etc.) that reduce the price of the vehicle in order to lower the payment amount. Now keep in mind that you will have to pay for taxes on the residual amount just as if you were going to buy a pre-owned vehicle for $12k. I am not sure where you live but in the region I am in, you can go back to any Toyota dealership to refinance it for up to 60 months at the current available new car rates. Leasing is personally my first option when considering a new car. It gives you the ability to make an educated and well calculated decision for something that is considered a depreciating asset. Have you considered perhaps trading it in and leasing a new one? I ask because returning lease buyers tend to get a better deal simply because you have leverage when pertaining to your trade in. This leverage plays out well when looking at a new vehicle because you are not backed into a corner. You do not have to trade in a vehicle with negative equity, over even feel like you a rushed into making a decision because your lease is up. You can actually extend your exact monthly payments on a month to month contract without a penalty. You will also be extended a prorated amount of miles determined by the original determined miles and have your residual adjust accordingly. Therefore, the dealers tend to get a little more aggressive when valuating your vehicle. They much rather try to capture that unit from a customer, than compete with hundreds of dealers at an auction. This might be a little more information than you asked for, but like truly believe in leasing. If you would like to know some more information concerning your options and how to inforce them, feel free to IM me at any time. 

[Luscher]

ok well this is were i am at now. The reason I want to keep the car is 1. I love it! (which is good) and 2. I want to pay it off and have no payments. that is why i do not want to lease a new car

the dealer expects me to have 36k miles at the end of my lease. i will have less than or equal to 20k.

will this change anything?

I know will end up paying the 27k total(without interest) if i keep it but i am ahead as of now since i have significantly less miles than i should

[dt33]

So then it sounds like you are making the right choice. Driving less miles than anticipated will not affect your residual. As I mentioned in one of the previous post, the residual is guaranteed and cannot in any way, be adjusted once the contract is in force. The good thing is that you are absolutely right, you are at an advantage because the residual was determined based on 12K/yr. That being said, one would assume that your car is worth a little more if it's in the condition that is expected at the end of your lease. Keep in mind, that you can finance the vehicle at a Toyota dealer and qualify for the same rates as if you were to purchase a new car. This should not sum up to as much as you are calculating.

You should know that the dealer does not get to determine your anticipated miles per year, as you want to lease a vehicle under your terms based on your driving habits. I hope I have answered your questions and everything works out well!

[Luscher]

Awesome! Thats good to know that its treated as a new vehicle. I have a good credit acore in the 700s and probably an even better auto enhanced score because of my 34 consistant auto payments. So hopefully i can get a rate around 1%. I might be coming into some money in the next 6 months to pay most of it off but either way i want the best rate

[dt33]

Well you should know that there is a difference between a new car rate and an icentivise new car rate. A 1% is not a rate you should expect to get from Toyota Financial. If your EQ score is above a 720, than I can safely say you will get about a 2.95% at a 60 month term.