From: sankar@Xenon.Stanford.EDU (Sriram Sankar)
Subject: Re: Info wanted on leasing vs buying
Originator: sankar@Xenon.Stanford.EDU
Organization: Computer Science Department, Stanford University.
Date: Mon, 9 Nov 1992 22:17:39 GMT


From Judeman Hockeynut:

> This is where you are wrong.  If you decide to purchase the car for the
> residual at the end of the lease you don't pay sales tax on the residual, you
> pay it on the original purchase price.  This is what most finance people at
> dealerships don't like to tell you, because it is a big negative.
>
> Leases are usually only good if you trade in your car every couple or so years,
> where if you financed you would be "upside down" on a traditional purchase
> loan.  Also, leases can be good if you use the car for your business and then
> you can write-off some or all of the monthly payment.

I've done some research, talked to some people who have actually gone
through the entire lease process, talked to my leasing company, etc.
I'm now absolutely positive that at the end of my lease, I have to pay
sales tax *only* on the residual amount.  See below for more details.

Maybe different leases are different, and Judi's experience has been with
the other kind of lease.  In any case, I did some calculations, and in
my case, even if I have to pay sales tax on the entire amount, whatever
it is, I still come out better by leasing rather than buying.  However,
certain other leases (e.g., Honda) did not seem that attractive (I bought
a Saab).


From Carl Heinzl:

> Nope, I *STRONGLY* disagree with this statement.  The buyout figure
> calculated on my lease is done very straightforwardly (well it's
> straightforward if you know what you're familiar with this type of
> financial dealing).  I negotiated an initial price for the car (let's
> call it the "purchase" price).  The residual price for the car is set
> by the dealer (in my case to be 53% of the MSRP, which is a little
> over 18k for my '92 Acura Legend LS) and the payments made are just
> like I take out a loan for the full amount and have a balloon payment
> at the end equal to the residual amount.  It is most definitely NOT an
> inflated number.  If this number truly were inflated then the bank
> (who will own this car at the end of the lease) would get stuck owning
> this car without being able to get rid of it.  They just want to be
> able to sell the car wholesale which is the amount less than cars will
> go for in the retail (or even private sale) market.  If anything,
> buying a car at the end of the lease is a GOOD deal (i.e.  if it's
> your car and you're happy with it).

I fully agree.  A closed end lease gives you only advantages.  If the
actual value of the car at the end of the lease period is higher than
the residual amount, keep the car (or sell it) and you will be better
off as compared to returning it.  On the other hand, if the actual
value is lower, just return the car, and essentially, you have had
access to a car at less than the "correct" amount just because the
leasing company had figured out the residual payment wrongly. i.e.,
you win either way.

Also, I heard that there have been a couple of incidents recently
where the lessee was able to bargain for a lower residual amount at
the end of the lease period.  This bargaining took place at the end of
the lease period.

Sriram.

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