Help! how does lease to own work????

my dealer says this is the best way to acheive my super low ball price..

i know nothing of the pros and cons... can anybody please shed some light??

 

I had this exact same question but never really completely understood it myself. Never believe anything a dealer says. Well, I take that back. My dealer was very nice and even told me to lie to his boss so they the boss wouldn't give me trouble for not buying that day and stuff. The dealers themselves can be okay guys, but the guys in the back room are who you have to watch out for. They got plenty of experience with fools like us.

Back to your question. I've heard it's best to lease new cars (if your'e going to lease at all) and finance used ones. When you lease to own however, you're paying a lot more than you would if you financed. The monthly payments will be lower, but the overall out of pocket costs will be extremely high.

Since budget is obviously a concern, may I suggest:
1. Buy a CPO (certified preowned) car instead of something brand new.
2. Sell your existing car privately to help pay for this new one.
3. Buy a used car from a private sale (that's what I did).
4. Buy one class lower but get all the options you want. or...
5. Take away some of the options on the one you're looking at.

Good luck with whatever you end up with. Bottom line...I do not recommend lease to own.

RECOMMENDATIONS ON GETTING A CAR:
- don't finance for more than 4 yrs....or number of years you plan to use the car.
- lease if you plan to use the car for a short period of time (2-3 yrs). Although I'm financing, I believe there's nothing wrong with leasing if you like having different cars all the time....which is totally okay.

 

Ultimately, in the grand scheme it's all about perspective. Does paying somebody else to use their money to buy a car bother you? If so, the best course is to pay cash. Would you rather keep your cash liquid instead of tying it up in an asset? Use somebody else's money and pay the interest.

With today's historically low interest rates, and long warranties, I don't see any problem financing for 60mo.

If you're looking to just have the car for 2-3years and then move to something else, lease.

Lease to own is a total scam though. They're probably telling you they'll give you a low price for the car because they know they're making a ton on financing. Lease to own traditionally works like this: you lease a larger portion of the cost of the car (think of a lease with a very low residual) and then at the end of the lease term there's a balloon payment due for the rest. This they expect you to finance.

It's a total BS way to finance.

 

thanks for the replys guys, I appreciate the responses... however, correct me if i am wrong, but how is lease to own better than paying all in cash up front...???

hypothetical scenario#1: I pay $40 Grand in cash on day 1 and buy the car outright with no financing... My total cost is $40,000 dollars all spent and out of my pocket the day I drive off the lot.

hypothetical scenario#2: I lease to own. I start off with $5 grand down and have a $600 monthly lease payment for 48 months. At the end of the lease, I have paid a total of $600 x 48 = $28,800 + $5,000 down = $33,800 total.
I now just pay the dealer the left over $6,200 at the end of the lease and the car is now fully mine and I own it.

I still pay no more than $40,000, just like scenario #1 above...

To me, it basically seems like a question of pay $40K up front or pay $40K over 4 years...

How is option #2 not a much better option? lease to own like this (the way by dealer explained it) compared to paying all cash that I would borrow from a family member interest free seems like a much better option then paying for it all at once, if the total cost is going to be the same both ways...

Alternatively, if i used their financing and they charge me interest of course, I will end up paying like $48K-50K for the same car but over 4-6 years... if the time value of money with MB financing equates to more value than the first 2 options, then I am sure this is the best way to go (mb financing)

but i highly doubt that is the case, which leads me to believe, how can anything be better than the lease to own scenario described above??

I feel like i am missing something huge which I probably am..

somebody who knows or is experienced, can you please clear this up and show me how my reasoning above is incorrect??

or is lease to own if done like i say above really the best deal???

thanks so much in advance for any help provided!

 

Your thought process flaw:

When you lease/rent, regardless of how its set up, you pay interest. Nobody, other than a possible family member, is going to let you make payments without paying them something extra for using their money. The dealer is in the business to make money. And low residual, per oblu's post, does not mean what you think it means per your post; i.e. remainder. Reread oblu's post again.

 

dude, you are missing my point...

read scenario 1 and scenario 2 above.... i have the zero interest family option so i would never use mb financing....

i just dont see how paying 40K now with my families money is better than paying 40K over 4 years with lease to own...

in both cases i pay the same amount of money, just one allows me to pay that same amount over 4 years...

how is this 40K over four years not better than paying all the 40K cash up front??? both cases i will own the car!

somebody please give me a logical explanation, as i still can not see anything better than lease to own in my situation...

thanks!

 

At the end of the 48 month lease you have to pay the residual plus a dealer fee (usually about $195) to own the car. On my C230 4 year lease, my residual will be ~ $17,500. In the lease you are paying the difference between negotiated price and residual (depreciation) plus finance charges. If you think in terms of a installment loan, in a lease only part of your payment is going towards the principal. The catch with most leases if that if you decide you want to either get rid of the car or buy the car early, they still might make you pay all the remaining lease payments plus the residual value. If you have ANY thoughts you will want to own the car or get rid of it before the end of the lease, then don't do it!

 

Nope, you're not getting the point. If you have the 0% family option then there will be no residual for you to pay after the 4 years unless you're payment structure is longer than 4 years and you lump what is longer into 1 last payment.
In your point 2 above you state owing the dealer, NOT a family member, after 4 years.

 

Dude, don't lease to own....that is designed for those that will have their car forever, but can't afford it to begin with. It works the same way as your "Rent-to-Own" furnature places...you pay and pay and pay, then eventually it is yours, which is usually a year or two after you need a new one.

If you can't afford the payments by financing the car, you shouldn't get it. If you only plan to keep it 2-3 years just do a straight lease to lower your payments, but keep in mind all of the other restrictions on the lease or you could end up being forced to buy the car anyway at the end of the lease term.

If you have the 0% family financing....DO IT. Pay them back instead of the bank.

 

The thing you are missing is that your hypothetical scenario # 2 is well just hypothetical. In reality if your car is worth $40,000 and you pay 600 bucks a month + 5000 cash down in four years, you only paid say 30,000 towards the car with ~3,800 going towards interest. Now the price to own the car is $40 K - $30 K = $10 K. You would have to pay $10 K + interest + whatever money the dealer sets for ownership.

I got the following offer on a BMW 328i:

Total cost: 36K +
Monthly payment: $560 @ 36 months/1500 cash down = $21,660

Residual payment at end of lease = $23K in cash. You can finance the 23K in which case you will pay another 2500 in interest.
Total paid ~ $45K

If I purchased the car, I would be paying around $700 a month @ 60 months, which works out to be $43K, and I will not have to pay a lump sum amount of $23K.

 

of course i would do 0% family financing... i have $30K saved up for a car that I could drop and the rest i would borrow from family and pay pack in about a year or 2 at a slow rate at 0%...

my whole thing is thought that the seller told me that with lease to own, I would pay exactly the same amount over 4 years as I would if I payed for it all up front... so it is a no brainer that I would rather pay $42K over 4 years than $42K on day 1... wouldn't you???

my plan is to put about $5K down and make lease payments of $600 a month... after 48 months i would have paid $28,800 total lease payments over 4 years + my $5K down for a total of $33,800. I would then pay $8,200 at the end of the lease and the car would be mine for a grand total of $42K over 4 years... that is what my dealer told me after I told him I had my own financing and could pay for it all in cash if that would give be a better price...

how is that not better than paying all up front? are you crazy? or what am I missing here or what is the catch, if any? my logic from what I was told clearly shows that the lease to own as specified by me dealer is a smarter and better option since I have 4 years to pay the exact same amount.

my intention is to buy the car and not lease

 

Your flaws, and no flame intended, and your lack of credibility:

1) In your 2nd post, post #4 of the thread, above it was $40k and now its $42k
2) Now its family money and in your other posts its owing dealer money
3) Nobody is missing your point as you represent it
4) You believe what the dealer tells you and lay it out it as cash with no interest - based on your rebuttal posts
5) It doesn't matter what this informed board tells you; you are trying to redirect and get them to give you the answer of the dealership.
6) As an educated person, link1, with your claimed profession you ought be better at financials.
7) In regards to your deposit as stated above, $5k; here are 2 different amounts you posted: link2 & link3.


Best thing for you to do is to STFF this board on leasing, cash buying, etc., prior to any more rebuttals based on your misguided understandings of what you were told by the dealership. Go back and have them put it in writing and post it on here if you want to continue along with this argument.

 

whoah broah how bout u settle?? dont you have better things to do than go track down all my posts?

yes my numbers slightly differ... first post i was used a realistic round # of 40K, second post i was using the actual # the dealer told me of 42K... sorry i dont reread every post to correct completely trivial things... FYI, that has nothing to do with credibility and is completely immaterial in this thread compared to my questions main premise

basically i am saying exactly what my dealer told me...
u guys are saying he lied ( which is possible) and that there is going to be interest on the residual after 48 months...

well we will see... i have it in an email response exactly what he said... when i go down there with the confirmation and they balk, then i walk... but i know that isnt happening and I will be coming back with a fully loaded c350 with about 5K off of MSRP... will post pics and copy of receipt within the next 2 weeks...

42K out the door on a 43575 msrp vehicle aint 2 bad if u ask me... will be posting proof of the mbworld top w204 deal very very soon so you guys can try to price match

 

By all means, if you find the dealer is telling the truth, then do it. I've never heard of such a thing, and it certainly doesn't fall under traditional lease to own programs. I also don't see how, or why, anybody'd give away money for free with no interest charges.

Please though, don't take the families cash and plunk it down on a depreciating asset. Stick in something with a 8+% yield and finance as much as you can afford ... that is unless your credit rating is such that you're paying >8% interest to finance.

I'm not the greatest with money, but I can't stomach the idea of plunking down 30k in cash and then in less than 2 years having all the money gone.

 

thanks for the good insight oblu... but how can you find an 8% yielding investment?? my FICO is currently 780 so i should get some decent rate on an mb financial loan... i have never leased or purchased a vehicle before so what rate do you think i would get with my credit? if i could find an investment where i could put 42K of my money & residual family money that paid higher than the interest rate i would pay to MB if i financed the car, then I would of course finance the car and put the money i have or would have put down up front in a higher yielding investment...

can you give me a typical scenario where this would make the most sense? as the only investment i could see is a CD which is barely over 5% right now if your lucky.... what is a typical interest rate for 780 FICO??

thanks in advance oblu!

 

are you saying that a car with 43575 will lose over 30K of its value in only 2 years??? i cant believe that would be true, is that what you are saying?? i would say maybe 10K at MOST in 3-4 years...

anybody who has better ideas about this please feel free to weigh in on typical depreciations for first year MB models

 

Just take a look at lease residuals. 24mo is ~70%, 36mo is 59%. That to me is a lot of lost value. I know in my head that I'm still paying for it, but I just can't stomach fronting all that cash.

My mutual funds, all averaged out did 12.8% last year. With a 760 you should get top tier; just head to eloan and check out current advertised rates.

 

is your mutual fund through your 401K? what did you choose for the majority of the makeup of your holdings??

 

I'd have to ask my financial planner which funds I'm in ... or my wife. I just stuff money away and try not to pay too much attention beyond yearly averages. Most of my funds are private investments outside of my 401k.

 

just as an FYI, I got a call from Mercedes Benz Financial about 3 months prior to my lease being done, and they told me that there was money back on my car...basically, I could buy my car for $2250 BELOW my residual value, which made it pretty tempting, but still risky, as I don't want to deal w/ potentially losing money on a trade in. I've had my car 39 months, and only see myself keeping it for another year, tops. They offered me an extended lease of 6 and 12 mos, both pretty attractive (lower than my original payment), so I chose to extend it for 12 mos.

 

That's cool to hear. This is my first time leasing, and the upfront rates weren't all that competitive ... so it's comforting to hear that MBF is a bit proactive it trying to retain customers. But how much of that was normal and how much was because they didn't want any W203's floating back after the W204 was released?

 

I'd say most of it is to "pre-sell" your used car to you before having to accept its return and put it on the lot just to cut the same deal to another buyer.