End lease early or finish it out?

April 1, 2009 3:42 PM

My car salesman is encouraging me to end my current lease early (by two months) and start my next one immediately. Pros and cons?

I'm currently 25 months into a 27 month lease on a 2007 Mazda 6. I've been to the dealership and decided that once this lease runs up (mid-June 2009), I will be leasing the 2010 Mazda 3. I put down a deposit on the new car a couple weeks ago.

My salesman called yesterday and said that my new car is in at the dealership and I could pick it up anytime. To me, it seems like I should finish up my current lease and just get my new car in mid-June. But, he was rattling on about the possibility of residuals decreasing and told me it would be better if I got the new car now and just started my new lease early while finishing up payments on my current lease.

I'm confused! I understand the idea of residuals, but don't have a ton of experience with car payments. What are the pros and cons of starting my new lease before my current one is up? Why would my salesman care?

posted by JannaK to travel & transportation (6 comments total)

All the inventory on the dealer lot is basically a liability to the dealer. They took out a huge loan to buy all those cars and until they re-sell/lease them to you, they are losing money on them. They need to keep the inventory moving to maintain their profit margins. Your salesman makes money by getting you to buy/lease vehicles he has on the lot. I don't understand how they can get you out of the curernt lease without you being responsible for the final payments, though.

Maybe they're expecting you to eat the early termination costs? Or maybe they're getting good incentives from Mazda that allow them to buy you out of the old lease with no financial hit. I'd just ask them to provide you with the exact numbers on what they're proposing and if you like them, go for it. My wife has a Mazda 3 and she loves it. It's a zippy thing.
posted by aperture_priority at 4:16 PM on April 1

Oh, just curious why you'd rather lease than buy. I leased once and will never, ever lease again. The lease termination clause hit me for $2200 in 'excess' wear and tear. Buy it if you can afford to.
posted by aperture_priority at 4:20 PM on April 1

You need to evaluate what the monthly payment in each situation will be. What are they willing to offer you? What deal will they cut you? Have them lay out in clear, easy to understand terms what you'll pay if you get the car now versus what you'll pay if you get it in June. Get those numbers in writing. If you're finishing up payments on your current lease while you're also starting payments on the new lease, you'll get hit twice but you'll only have one car. Perhaps, as Aperture suggested, they'll buy you out of your current lease? I can't imagine that making sense for them, though.

The salesman is trying to up his numbers right now and pocket that commission immediately rather than wait around. "Your" car didn't come in -- a car that has the same specs as the one you will lease in June came in. The language is very important, because in sales you want the buyer to believe that the thing you want them to buy is already theirs, which makes them more attached to it and hence more likely to buy. He said it's your new car because he wants you to think that if you don't pick it up, it'll sit on the lot for three months with a sign on it that says HOLD FOR JANNAK. You wouldn't want that, right?

Frankly, I think the salesman is trying to snowjob you -- it's suspicious, and his referencing residuals is a smoke screen. There's a lot of fishiness going on here. If it were me, I'd politely explain that I look forward to picking up the car in June, please make sure that it'll be ready then.

On preview, I'll agree with Apperture regarding leasing versus buying, but I presume that you're young enough that you can't afford a new car without leasing. You've already put down a deposit, and it sounds like you're attached to the car, but I'm a big proponent of buying recently-used cars, especially because they don't depreciate as fast and insurance is so much cheaper. Loans are also entirely acceptable methods of paying for cars.
posted by incessant at 4:31 PM on April 1

I think your dealer was referring to the residual in the 2010 Mazda 3, not your current Mazda 6. The residual is the estimated resale value of the car at the end of the lease. Your potential monthly lease payment on the Mazda 3 is based on the difference between the negotiated price and the residual value, divided by the number of payments plus interest. The lower the residual, the greater the difference between the price and the residual, and the higher your monthly payments will be.

Right now no one is buying cars, new or used. That may drive down the estimated residual in the Mazda 3's lease terms which translates into higher monthly payments. So the dealer is trying to pitch you to start the new lease today to lock in the the lease residual while it's higher instead of two months from now when the economy is tanking even harder and the lease residual (the car's resale value) is even lower. Of course, he probably has his own ulterior motives such as a getting a commission/bonus for moving cars off the lot asap.
posted by junesix at 4:40 PM on April 1

I have leased three cars in a row, and I turned the last two in early. They were eligible for a special "pull ahead" program where I didn't have to make x-number of months of payments if I leased or bought another car. That worked out for me -- especially because I was getting close on the miles. So, you might not have to make the last couple months of payments.
posted by dpx.mfx at 5:28 PM on April 1

Did your dealer ask you to do this today, or a couple of days ago?

At least in the past, car salesmen were always under pressure to up their sales numbers at the end of the month. I got a great deal on the first car I ever bought by walking into the dealership on the last day of the month with my checkbook in hand.

Take a look at the deal, and if it really looks good, go for it. Otherwise wait until April 29th and go in and talk to the dealer. You have the upper hand in the negotiation at that point because you can still walk away: your lease is good for another month. But if he can sweeten the deal enough to get you to flip a month early, he gets another sale in the month of April.
posted by alms at 6:23 PM on April 1