Buying out a lease on a car.
June 3, 2006 7:19 PM Subscribe
Buying a used car. Basically paying the buyout of a lease. Am I getting a good deal?
Standard kms for the age, 4 year old Mazda Protege 5. I'm basically paying $200 less than what it would cost this person to buy it out. Is this a good deal?
And for posterity, if one buys out someone elses lease, is it generally a good deal for the car?
Standard kms for the age, 4 year old Mazda Protege 5. I'm basically paying $200 less than what it would cost this person to buy it out. Is this a good deal?
And for posterity, if one buys out someone elses lease, is it generally a good deal for the car?
Check www.kbb.com and figure the difference.
posted by Mach3avelli at 7:51 PM on June 3, 2006
posted by Mach3avelli at 7:51 PM on June 3, 2006
Response by poster: So there is no standard answer to this? Such as, it's generally frowned upon to buy a former rental vehicle, or a vehicle that's been in a large accident, or don't chew with your mouth open? This is more or less a 'it depends' sort of thing?
And KBB doesn't really apply to Canada, as best as I can tell. And Canadian Black Book is so far below, I've never seen a car come close being near Black Book.
posted by eurasian at 8:13 PM on June 3, 2006
And KBB doesn't really apply to Canada, as best as I can tell. And Canadian Black Book is so far below, I've never seen a car come close being near Black Book.
posted by eurasian at 8:13 PM on June 3, 2006
Best answer: I think four years might be a bit early. Cars depreciate in value exponentially over the first few years after their driven off the lot. A lease is very linear, so if you could graph it out, you'd be making the best decision after the point by which they intersect.
In my experiences, I've never seen anyone try to unload the last of their lease at a better value than the car would be on its own. I'd recommend you stay away.
posted by Mach3avelli at 8:34 PM on June 3, 2006
In my experiences, I've never seen anyone try to unload the last of their lease at a better value than the car would be on its own. I'd recommend you stay away.
posted by Mach3avelli at 8:34 PM on June 3, 2006
Response by poster: So either it's a pretty good deal, or I'm being swindled? I'm a a bit confused as to this whole lease thing. So you lease it for x amount of years, at the end, don't you just have the option of giving it back?
Other options
1) Buy it out.
2) They buy it off you?
Yeah, I'm already getting confused. This guy's logic is thus, they either buy it out from me for x, or I sell it someone else for a bit more? Ok, now I'm really turning myself around. What are the options after a lease is up?
posted by eurasian at 8:40 PM on June 3, 2006
Other options
1) Buy it out.
2) They buy it off you?
Yeah, I'm already getting confused. This guy's logic is thus, they either buy it out from me for x, or I sell it someone else for a bit more? Ok, now I'm really turning myself around. What are the options after a lease is up?
posted by eurasian at 8:40 PM on June 3, 2006
Best answer: Usually a lease is structured so that the lessee is paying for the depreciation expected over the term of the lease. For example, if you lease a $10k car that (historically) is worth $6k after 4 years, then your lease payments would be more-or-less enough to pay back a $4K loan over 4 years. (Don't forget, the lessee is responsible for maintenance during the lease.)
For a car that sells many units, the depreciation numbers are usually pretty close (the car really will be worth close to $6k after 4 years, in this example).
After the lease, the lessee usually has two choices: return the car and walk away (or, more likely, lease a new car); or buy the car. If he buys the car, he pays the depreciated price ($6k), or maybe gets a loan for that amount.
It makes sense to buy out your own lease if: you like the car, it's still in good shape, and you're confident it won't need major service soon. Otherwise, give it back. (Some people inexplicably think they need a new car every 3-4 years, so they won't buy out their lease.)
It makes sense to buy out somebody else's lease if: you like the car, it's still in good shape, and you trust the lessee. But buy it at the lessee's buy-out price? I don't think so. Look a little deeper: maybe the lessee put too many miles on, so he's on the hook for an excess mileage charge if he returns it (leases are commonly limited to 10-15k miles/year, and if you go over, you have to pay extra if you return the car instead of buying it). That's a double whammy for you: the car is worth less (because of the higher mileage) and you're saving the lessee the mileage charge he would otherwise have to pay.
posted by spacewrench at 9:00 PM on June 3, 2006
For a car that sells many units, the depreciation numbers are usually pretty close (the car really will be worth close to $6k after 4 years, in this example).
After the lease, the lessee usually has two choices: return the car and walk away (or, more likely, lease a new car); or buy the car. If he buys the car, he pays the depreciated price ($6k), or maybe gets a loan for that amount.
It makes sense to buy out your own lease if: you like the car, it's still in good shape, and you're confident it won't need major service soon. Otherwise, give it back. (Some people inexplicably think they need a new car every 3-4 years, so they won't buy out their lease.)
It makes sense to buy out somebody else's lease if: you like the car, it's still in good shape, and you trust the lessee. But buy it at the lessee's buy-out price? I don't think so. Look a little deeper: maybe the lessee put too many miles on, so he's on the hook for an excess mileage charge if he returns it (leases are commonly limited to 10-15k miles/year, and if you go over, you have to pay extra if you return the car instead of buying it). That's a double whammy for you: the car is worth less (because of the higher mileage) and you're saving the lessee the mileage charge he would otherwise have to pay.
posted by spacewrench at 9:00 PM on June 3, 2006
Response by poster: Ah, that makes sense. So generally, any sane person would not be offering someone the cost of buying out his lease?
Well, let's hash out the numbers here. As I've found out, prices are still very much a supply and demand thing. In Vancouver, BC, a 2002 Mazda Protege 5 retails around $15k CAD, with average KMs (assuming avg KMs is 24k/yr = approx 96k kms).
Average prices here. Keep in mind that that for a retail sale, there is GST and PST (12-13% total tax) plus documentation fees + any fairy made up fees they can tack on (As opposed to a private sale that is only 6% PST). I'm not sure what's going on there.
However, there are some crazy prices there, like 9k, and 12.5k. Maybe those are just CRAAAZY car salesmen.
This guy is offering me the buyout at 14k, including taxes, so that's about $13,200 before taxes.
However, when we look at blackbook prices, or KBB, or edmunds, we see prices for this car ranging from around $9-10k. This seems to tell me that these guides really get thrown away when dealing with a high demand car. Is that the case?
The pluses of this deal, it's a no accident, one owner, well maintained car (barring a horrid mechanic inspection). Is there some fantastic deal out there that I'm missing? Or should I be more or less happy with this? Given that a background check on the VIN and a mechanics inspection gives an a-ok?
posted by eurasian at 9:23 PM on June 3, 2006
Well, let's hash out the numbers here. As I've found out, prices are still very much a supply and demand thing. In Vancouver, BC, a 2002 Mazda Protege 5 retails around $15k CAD, with average KMs (assuming avg KMs is 24k/yr = approx 96k kms).
Average prices here. Keep in mind that that for a retail sale, there is GST and PST (12-13% total tax) plus documentation fees + any fairy made up fees they can tack on (As opposed to a private sale that is only 6% PST). I'm not sure what's going on there.
However, there are some crazy prices there, like 9k, and 12.5k. Maybe those are just CRAAAZY car salesmen.
This guy is offering me the buyout at 14k, including taxes, so that's about $13,200 before taxes.
However, when we look at blackbook prices, or KBB, or edmunds, we see prices for this car ranging from around $9-10k. This seems to tell me that these guides really get thrown away when dealing with a high demand car. Is that the case?
The pluses of this deal, it's a no accident, one owner, well maintained car (barring a horrid mechanic inspection). Is there some fantastic deal out there that I'm missing? Or should I be more or less happy with this? Given that a background check on the VIN and a mechanics inspection gives an a-ok?
posted by eurasian at 9:23 PM on June 3, 2006
You're buying a kind of car that starts to cost some serious bucks (maintenance wise) around the time that maintenance becomes an issue.
My family bought a four year old car years ago and I did the math. The first year cost us nothing, but every subsequent year the car's maintenance went from 1000 to 1500 to 2000 and now it averages 2400/year. Granted, this is a German car, but the amount of money my family saved by buying a used car is being spent maintaining it.
Moral of the story: only buy a used car if you know that the amount of money you save (instead of buying new) is greater than the projected amount of money you'll spend maintaining it a few years down the road.
posted by SeizeTheDay at 10:20 PM on June 3, 2006
My family bought a four year old car years ago and I did the math. The first year cost us nothing, but every subsequent year the car's maintenance went from 1000 to 1500 to 2000 and now it averages 2400/year. Granted, this is a German car, but the amount of money my family saved by buying a used car is being spent maintaining it.
Moral of the story: only buy a used car if you know that the amount of money you save (instead of buying new) is greater than the projected amount of money you'll spend maintaining it a few years down the road.
posted by SeizeTheDay at 10:20 PM on June 3, 2006
(Some people inexplicably think they need a new car every 3-4 years, so they won't buy out their lease.)
There's nothing inexplicable about it. That's the point at which, statistically, repairs become an issue. The whole point of leasing is so that you can drive a new car every couple of years. The whole point of doing that is to not pay a whole bunch in maintenance.
posted by Mr. Gunn at 1:08 AM on June 4, 2006
There's nothing inexplicable about it. That's the point at which, statistically, repairs become an issue. The whole point of leasing is so that you can drive a new car every couple of years. The whole point of doing that is to not pay a whole bunch in maintenance.
posted by Mr. Gunn at 1:08 AM on June 4, 2006
Average prices here.
Availability may depend on which province you're in, but that site you linked to definitely shows some better deals when considered strictly from a km/price point of view.
While those deals may not be available where you are, I'd have to imagine that you could do better given listings like these:
76k km, for $11k.
58k km, for $11.5k if you don't need an automatic.
posted by juv3nal at 1:16 AM on June 4, 2006
Availability may depend on which province you're in, but that site you linked to definitely shows some better deals when considered strictly from a km/price point of view.
While those deals may not be available where you are, I'd have to imagine that you could do better given listings like these:
76k km, for $11k.
58k km, for $11.5k if you don't need an automatic.
posted by juv3nal at 1:16 AM on June 4, 2006
Can you guys point to anything that backs up your claim that repairs shoot up after 4 years?
I've only ever driven 4+ old year old cars, bought modestly and carefully and pay less in repairs than most people who buy new cars.
That could be an anomaly, but it could be normal. Can you back up your claims? I had a quick google and didn't find anything.
posted by sien at 1:46 AM on June 4, 2006
I've only ever driven 4+ old year old cars, bought modestly and carefully and pay less in repairs than most people who buy new cars.
That could be an anomaly, but it could be normal. Can you back up your claims? I had a quick google and didn't find anything.
posted by sien at 1:46 AM on June 4, 2006
Response by poster: Yeah, I'm not sure, 4 years does seem to be a somewhat danger zone, depending on the car. How long have you had your cars that you buy 4 years old?
Keep in mind that SeizeTheDay might be referring to a Volkswagen, which has, quite recently, lets it's quality and reliability go right down the tubes. Lemon-Aid places it somewhere around 25th or something in automakers for reliability. Consumer reports gives it worse than average and MUCH worse than average rating for it's Jetta 01, 02, and 05, Beetle 01-05, Passat 01, 02, 05.
posted by eurasian at 9:19 AM on June 4, 2006
Keep in mind that SeizeTheDay might be referring to a Volkswagen, which has, quite recently, lets it's quality and reliability go right down the tubes. Lemon-Aid places it somewhere around 25th or something in automakers for reliability. Consumer reports gives it worse than average and MUCH worse than average rating for it's Jetta 01, 02, and 05, Beetle 01-05, Passat 01, 02, 05.
posted by eurasian at 9:19 AM on June 4, 2006
Response by poster: Juv3nal, well, take into account that Quebec and the snowier provinces usually do pretty abysmally for used cars, since the salt on the road eats away at cars very quickly. I suppose if I was willing ot import from quebec, and deal with all the licensing fees etc, I might be able to get a better deal.
posted by eurasian at 9:21 AM on June 4, 2006
posted by eurasian at 9:21 AM on June 4, 2006
My family has had American, Korean, and German cars. Our preference has been German. The average amount of time we've kept our cars has been approximately 12 years. For instance, we bought an '83 Oldsmobile in 1983 and it died in 1998. We bought an '83 Mercedes in '87 and sold it in 2002. My college car, a '96 Hyundai Accent, was purchased in '98 and is still going.
We've had seven cars since my dad first came to this country so I think our sampling, though only representative of one family, is pretty comprehensive. My advice has always been, if you buy a used car that's less than 20K new, you better be getting a fantastic price, because the money you save now on the purchase price will come and haunt you once the car gets to be about 5-6 years old. (This is assuming that you plan to keep the car for a while; if you'll sell it in a few years, YMMV)
posted by SeizeTheDay at 9:41 AM on June 4, 2006
We've had seven cars since my dad first came to this country so I think our sampling, though only representative of one family, is pretty comprehensive. My advice has always been, if you buy a used car that's less than 20K new, you better be getting a fantastic price, because the money you save now on the purchase price will come and haunt you once the car gets to be about 5-6 years old. (This is assuming that you plan to keep the car for a while; if you'll sell it in a few years, YMMV)
posted by SeizeTheDay at 9:41 AM on June 4, 2006
Response by poster: SeizeTheDay : thanks for the background, that is a pretty comprehensive history. I guess that's why the price for a used car drops dramatically from 2 years old to 3 years old.
As an aside, how are you liking your Hyundai? Pretty reliable?
posted by eurasian at 10:24 AM on June 4, 2006
As an aside, how are you liking your Hyundai? Pretty reliable?
posted by eurasian at 10:24 AM on June 4, 2006
It's a great college car. You don't care if it gets beat up, it gets good gas mileage, and maintenance (parts/labor) is pretty inexpensive.
OTOH, this car has gone through 2 transmissions and just about every part of the engine compartment (except the engine and compressor) has been replaced at least once already.
It would've been cheaper and less time consuming to purchase a Japanese car, despite the ridiculously low sticker price of the Hyundai. Now, recent Hyundai owners (I think kindall has chimed in here before) might tell you different, but no one in my family nor anyone we know will ever buy a a Hyundai ever again.
posted by SeizeTheDay at 10:31 AM on June 4, 2006
OTOH, this car has gone through 2 transmissions and just about every part of the engine compartment (except the engine and compressor) has been replaced at least once already.
It would've been cheaper and less time consuming to purchase a Japanese car, despite the ridiculously low sticker price of the Hyundai. Now, recent Hyundai owners (I think kindall has chimed in here before) might tell you different, but no one in my family nor anyone we know will ever buy a a Hyundai ever again.
posted by SeizeTheDay at 10:31 AM on June 4, 2006
This thread is closed to new comments.
posted by ChazB at 7:50 PM on June 3, 2006