Have a strange question for you folks ... maybe you know the answer before I talk to dealers.

I am thinking about trading in my MC and still have about $4K on my loan.
Would like to lease my next car ... so assuming I get $13K for the trade in and have about $4K out of pocket on the new lease ... how is the difference left over handled? Can the dealer cut a check to me for it? ... or what else?

Any help is appreciated. Thanks!

 

A lease is nothing more than a loan where you pay for the anticipated depreciation of the leased vehicle over the lease period. If a car sells for, say $25k and the "residual" is $15k, the "lease" is really a loan for that $10k.

Thinking of it that way, you can negotiate either the price, the residual (by extension, the difference) or the interest rate. Never take a lease offer at face value, it's like paying sticker price.

If you're putting money into the lease, whether it's through a trade-in, down payment, nonrefundable security deposit, whatever, it's simply eating into that $10k (or padding the dealers pockets, or both).

(end lesson)

You're being faced with several SEPARATE financial transactions. The dealer WILL try to confuse you with this!

1) The sale of your car.
2) The payoff of your loan (which can typically be handled by your dealer)
3) The lease of the new car (which is several negotiations rolled into one: the purchase price, the residual, the interest rate, and the affect of any "down payment" to reduce the difference).


If your car's worth $13k, the dealer will in effect give you a check for $13k. They may offer to pay off your loan and give you a check for $13k - $4k = $9k. They may further offer to "let" you put some of that $9k toward lease prepayment (or fees), in effect lowering the difference between price and residual, and lowering your payment.

BE CAREFUL - this seems like simple math, but do some studying before leasing and get to know what you're getting into - and how to best negotiate it!

With a fairly high resale value, you will likely get more for your mini selling it yourself, but there's a hassle factor involved with that - is the hassle worth the extra maybe $1000 - $2000 you will get out of it? (think of what you're in effect being paid per hour for the effort before answering).

God luck either way, what type of car are you thinking of getting?



EDIT: I misread your initial post - that $4k was lease expenses, not a loan balance. Remember, the reason most people lease is to NOT have their capital tied up in their car, and only pay the variable costs of owning the car. Putting money "down" on a lease is just reducing the difference between the dealer's "sell" and "residual" numbers - in effect reducing your monthly payment. Consider how much of a monthly payment reduction you're getting compared to the $4k - and translate that into an interest rate (in other words, where else can you invest that $4000 for a better return?). I'd bet you'd be shocked (if you need help on this, ask the dealer - they'll be stumped!). What I mean is this: If you put $4000 down, and it reduces your monthly payment $100/month on a 3 year lease as compared to NOT putting $4000 down, you've then "invested" $4000 to "save" $3,600 (that's the 36 months of $100 savings), and that's prior to considering the time value of money. Not a great investment, by any stretch.

Run your numbers, get a financially-savvy friend to help if you must, and DON'T allow a dealer to take you to the cleaners!

OK, enough, I'm tired, hope this helps....

 

Thanks for your help with this ... great breakdown!
Was looking at a 3 Series and all the lease deals in NY are about a $4K downpayment from the dealer ... of course to make the monthly payments look attractive. Short term leases at that too ... 24 month.

Thanks for all the tips really!!! Great information.

 

You're welcome - it was late, I was bored.... Do your homework though, I know plenty of folks who've gotten a raw deal leasing, others for whom it works out...

 

Yeah, I think it really boils down to how the car will hold its value over time
I can't really imagine why someone would lease a MINI for example ... it felt from day one, that it would be still worth something 3-4 years down the line.

American cars which have bad resale value, I would never outright buy ...

I hate quite a few things about leasing, one being the convoluted way in which it's calculated the other being the fact that you are technically stuck with the car for the lenght of it.