Volkswagen Leasing/Leasing in General

[TomJD]

I've had a lot of people ask me about leasing a vehicle recently. Not sure why I am being asked as I have nothing to do with car sales/leasing. But a lot of questions came up. Here are a few of the big ones that people asked and I want to put it out there on this forum for people to see, and also so people know about how the process works. I have always been a 'pay cash' type of person, but the more I research leasing, the more I realize there are certain advantages. I know the tax is certainly less, and over the same period most people usually spend less leasing than financing (if they do the minimum down payment). Almost everyone I talked to wanted to lease the vehicle then buy it and I assume that is what a lot of TDI owners would do given we tend to hold our vehicles longer. I know some of you lease, and I know some of you own/work at dealerships. So...

Anyone know how leasing works, besides just the basic "you lease then turn it in?"

How much do the vehicles cost after the lease if you want to buy back? And is that an agreed upon price or does it depend on wear and tear, ect?

Are you responsible for maintenance (seems you could really neglect the vehicle for the leasing period if it was up to some.)?

Does credit factor into the process in the same manner it would for financing?

Do you haggle the sale price just like you would if it were a true sale?

When paying with cash, you have more leverage than with financing through the dealer. Does the same apply for leases?

Is the title in your name?

Do you have to have full coverage on the vehicle since it technically isn't yours?

And would you buy a used vehicle that just came off a lease?

 

[Roshermoore]

Leasing

As one who has leased a few vehicles over the years, I'll take a shot at your questions.

Anyone know how leasing works, besides just the basic "you lease then turn it in?"

How much do the vehicles cost after the lease if you want to buy back? And is that an agreed upon price or does it depend on wear and tear, ect?

This depends upon the lease. Most leases, however, will have a stated end of term buyout value. This value usually can be adjusted if the allotted mileage has been exceeded or if there is damage to the vehicle beyond normal wear and tear.

Are you responsible for maintenance (seems you could really neglect the vehicle for the leasing period if it was up to some.)?

Yes, you are required to do all scheduled maintenance during the lease term. You can be required to show evidence that all required maintenance has been done.

Does credit factor into the process in the same manner it would for financing?

Yes, your credit score will affect the cost of the lease much the same as if you were financing the purchase.

Do you haggle the sale price just like you would if it were a true sale?

Yes, since the sales price affects the monthly lease payment.

When paying with cash, you have more leverage than with financing through the dealer. Does the same apply for leases?

I don't understand the question.

Is the title in your name?

No, the title is in the leasing company since they own the vehicle during the lease term.

Do you have to have full coverage on the vehicle since it technically isn't yours?

Yes, most leases will require you to keep the vehicle fully insured during the lease term.

And would you buy a used vehicle that just came off a lease?

Yes. They are usually relatively low mileage vehicles and most have been properly maintained.

Hope this helps.

 

[oilhammer]

I'd also like to add that leasing can be a more attractive option for companies or independent contractors using vehicles for business because it allows for a little different way to spread the cost out over a longer period of time.

Keep in mind, you generally are not "forced" into returning the car, the person leasing the vehicle will have the first option to purchase the car at the end of the lease term if they desire. And if this happens, the mileage and condition of the car is not an issue (since the leasing organization won't care).

My wife and I have leased a couple of Volkswagens before, because when she was working they had a really strange way of compensating her for mileage on her car, and a lease was oddly enough the wisest choice even though we could have paid cash for the vehicles in question (which I generally do, since my butthole puckers at the thought of paying interest for something that depreciates).

Also, while the driver/company is typically responsible for PM and general upkeep and wear and tear items, sometimes the lease company has built those costs into the package, and THEY are responsible. Fleet management companies are something we have to deal with quite a bit here at the shop. And you want to talk about bean counting... sheesh....

 

[axnels2]

tomjd,

Think of leasing is like a long term car rental from the OEM, with some drawbacks... You will have to have it insured and maintained, unless the dealer has some free maintenance. It really only makes sense if you take advantage of tax deductions or you get a new car 3 or 4 years. I see no benefit of buying a car that you are leasing...

The biggest drawback to me is that the dealer locks in the residual value of the car during lease signing... Who knows what the car is going to be worth in 4 years? You can make a guess, but still. Chances are the car is not going to be worth as much as it states in the contract... By inflating the residual value dealer can normally offer a better monthly lease payments as they discount the depreciation.

 

[South Coast Guy]

Just to add to the discussion, you will be required to pay "gap" insurance (difference between value if totaled and and buyout price). Second, your lease will include an allowance for miles driven. This may be as low as 10K a year. Excess miles used may cost as much as 15 cents a mile. Leases don't work for drivers that rack up 30K a year. And if you use less than the allowance, you don't get anything back.

When you turn in your lease, some dealers may be sticklers for condition. That small scratch in the paint work or stain in the carpet could cost you hundreds to fix.

I think there is one situation where leases work: leasing very expensive cars, such as Mercedes, Volvo, BMW. These brands are also expensive to repair. Since these brands include (usually) all service in the price, all the owner pays is the lease payment. At the end of 3 years, you turn it in and get another new, expensive car and don't have to deal with repairs out of warranty.

If interested in leasing, investigate a "one-payment" lease. Even though interest rates are low, it could save you some money.

 

[South Coast Guy]

Forgot to mention; it makes no sense to lease and then buy at the end of the lease. You end up paying a high price for the car. Residucal value is in the lease. Rarely are cars worth more than the residual value. Lease companies have become more accurate in predicting values.

 

[oilhammer]

Both of my cars were worth more at the end of the lease than the buyout was.... one substantially more. I would have been a fool NOT to buy them, even if I didn't want them, as I could have easily sold them and kept the profit for myself instead of letting VOA do it.

However, both my cars were diesel Volkswagens, so that helped.

It really depends on how you set it up. If you put more money down, you can get a lower payment, same as a purchase.

Many of the companies we deal with buy their vehicles out of their leases, then turn around to take them to auction (same as the lease company would) to get more return on the investment.

 

[TomJD]

The other question I forgot to mention is:

Do you lease from VW (for example) or through a separate company? Similar, I suppose, to financing through the dealer or financing from a bank.

 

[oilhammer]

Yep, exactly. And that can really depend on what deals are going on at the time. There really is no one size fits all solution, to be honest. And if we are being truthful, the purchase/lease of any *new* car is very wise anyways, if you are just looking at the raw numbers.

 

[Corsair]

my 0.02-
Surprised to find that I generally agree with vast majority of the above. On reading the OP, I thought for sure this would result in a dust storm. I do want to comment on one item....

When paying with cash, you have more leverage than with financing through the dealer. Does the same apply for leases?

I understand the POV that paying cash is generally better and often puts one in better position to barter, but don't assume that's necessarily true with cars. There are incentives that dealers get, for writing loans (either with the auto manufacturer or with local bank). Either way (whether you pay cash for the car, or whether the dealer sells you a loan with it), the dealer gets full payment for the car. But the overall deal may have a bit more "wiggle" room if the car is financed, and the dealer is getting some incentive from that.

On leases in general, and acknowledging the very astute inputs above, I've generally thought of leasing as the approach that allows access to the car with least impact on (typically monthly) cash flow (but often not the most efficient for long term cost). Of course with leasing, you're also getting a new car every 2-3-4 years etc., but you're paying for it. Buying a car and maintaining it well and keeping / driving it for a period of time longer than the typical lease... gives cheaper long term cost of ownership, although the initial monthly cash flow is typically tougher if you don't buy it outright.

 

[kjclow]

I'll give a few comments from the corporate side, which is different. On corporate leases, the deal is typically for x miles, not time. On our company cars, the lease runs now for a maximum of 75,000 miles. The sales people can start looking into a new car once they have passed 60,000 and then it just depends on the leasing agency how soon they get your new car to you. The leasing company has just started to offer the turned in cars to us at a discount compared to a dealer price.

One comment on consumer leasing is that if you move to a different state, you may have to get your leasing company to reassign the title to an office in your new state. I have heard that depending on where you move, your leasing rate may change. For instance, if you move from Omaha, Nebraska to LA, since there is a much higher population density, your rate may go up.

 

[hutchmanhd]

When you lease a vehicle, you are simply paying for the depreciation due to your use of the car plus some profit for the leasing company. You only "borrow" the amount of money between the sales price and the residual value. You pay what is called a money use factor on that money but you will never see the term "interest" when you lease a car. This is one way that you might be paying too much money to lease a car......even if the payment is slightly less than a purchase.

So how do you know how much "interest" you are paying on your lease? All you have to do is ask what the money use factor is for the lease. They might say that your money use factor is .00208. Simply take the money use factory and multiply it by 2400....in this case that comes out to 5%. That way you know what the cost is in terms that are easily understood.

MUF X 2400 = APR

Leasing is a very good option for some....those with a business and people like me who trade frequently. I have never kept any car longer than 3 years...new or used. If I shop for the right lease I save some real money.

Where I live, sales tax is 8.3%, so right off the bat, I save that much and only pay tax on my payment. Then depending on the car and residual, I am usually better off in terms of worth at the end of the lease than I am at the same point in a financed purchase.

The residual is both a known end value, and an unknown in the fact that we do not know what the car will really be worth. Someone above stated the lease companies are good at predicting these values and that was a reason to never buy a car at the end of the lease.......and this is not accurate. They are very good at predicting values, but that is a plus for the buyer. You have the knowledge to know how much the car will cost to buy at the end of the lease. If the car is worth more than the residual value, you buy it at the residual......if it is worth less, the leasing company gets it back. This knowledge of the lease end value is a win/win for the consumer is used correctly.

To know if a lease is good for you, decide how long you are going to keep the car.

Know the APR and money use factor for comparison.

Know the payment for a purchase and a lease for comparison.

For me, let's assume I am going to buy a $25000 car and i plan to trade after 3 years. I am buying this car with no money down on my good credit, so i get a 4% Apr. In may case i would have to finance $27,075.00 and the payment for 72 months would be $423.59.

However, we are interested in the cost over three years, so at he end of 3 years, I would owe $14374 on the loan and would have paid $15, 249 in payments.

So now let's consider a lease on the same car at the same price. I am going to assign a residual of 60% after 3 years on this car and that is probably a good number for a good quality car.....Honda is what I am familiar with, but VW should be similar or maybe even higher. So the lease end value will be $15000 leaving $9000 to pay for in depreciation. I am going to assign a money use factor of 0.016666 or 4% APR. The payment for the depreciation and money use is $265.72, but we have to add sales tax to that for a total of, $288.

So, over 36 months, this hypothetical car would cost me $15,249 if I buy it and $10,368 if leased. In this case, the clear winner is the lease.

HOWEVER, when deciding to lease, you need to go through this calc for each lease. The bottom line changes with residual and money use factor. If the residual was 50% instead in the above lease, the monthly payment would jump to $399. Still cheaper, but much closer to the payment.

If you are thinking about leasing, go in with your eyes open, be educated, and ask questions about the lease before signing.

And to add, if the payment was exactly the same, you are still better off after 3 years because you have only paid tax on 1/2 the value of the car rather than the full amount if you buy........

Much to consider......

 

[strayts]

I got our '11 TDI certified-preowned, and the first owner definitely leased it and went 6k over in miles (assuming the 10k mile/year milage limit, mine had 36k). 6k * $.25 = a lot to pay extra at the end. Keep that in mind!

 

[kjclow]

The mileage limit has been the primary reason why I have never leased. With no kids in the house, the mileage has really dropped. I would consider leasing now but still like the idea that at some point in the not too distance future, I won't have any car payments. Well, at least I won't have any car payments for a while.

 

[hutchmanhd]

I got our '11 TDI certified-preowned, and the first owner definitely leased it and went 6k over in miles (assuming the 10k mile/year milage limit, mine had 36k). 6k * $.25 = a lot to pay extra at the end. Keep that in mind!

You only pay the mileage penalty if you give it back. I always trade mine back into the dealership and never pay a penalty to the leasing company. The only hit you take is in the value of the car, which is no different than anyone else takes on higher mileage.

 

[strayts]

You only pay the mileage penalty if you give it back. I always trade mine back into the dealership and never pay a penalty to the leasing company. The only hit you take is in the value of the car, which is no different than anyone else takes on higher mileage.

Right. I was just making the point that my car's PO gave it back and very likely paid a stiff fee.

 

[wbill]

It's simple, if you plan on keeping the car for a short time frame 3 years and YOU DON'T go over the milage 10-12k a year a lease is not a bad deal if you check the numbers....

If you keep a car for a long time, drive it till it dies and put miles on the car each year then you buy the car our right or with a loan.

As someone said above if you like expensive cars and you trade out of them every 3 years and you lease them only for the warr time frame it usually works. I have a friend who likes hot cars, one of his best leases was a Audi S-4 one of the years with the big V8 stuffed in a S-4 body it was like a driving a european luxury NASCAR racer on the road. It was fast sounded great, and he leased it only for the warr period when the lease was up it had not cost him a penny in repairs. That was the only way to own that car..... He is now retired and drives a Honda....he can afford to repair it when it needs something.....
wbill

 

[IndigoBlueWagon]

I've got two leased VWs right now, my '12 Golf and a '13 Jetta S that my daughter drives. I leased both of them with the intention of buying the cars at the end of the lease term. I leased the Golf in part because it's easy to write off as a business expense. And I leased the Jetta after investigating various options, and VW's leasing rates were most favorable. Both leases were with no money down. Residual for VW leases is typically 55% of the car's MSRP (not the cost you negotiated) at the end of the lease term, and all VW Credit leases include gap insurance.

I find that when the money factor is favorable (leasing's version of interest rate) leasing and then buying at the end of the term is a great way to get the car you want, not tie up any funds for the first three years, and buy a great used car--one that you drove--at the end of the lease term. And if you buy the car at the end of the term the total mileage doesn't matter.

 

[strayts]

Another thing to think about is that when you take out a traditional loan (home or auto purchase), the lender is required by the Truth In Lending Act to disclose information meant to protect the consumer. That is, they have to tell you the exact interest rate with an amortization schedule, etc etc. Leasing a car doesn't fall under this restriction.

This creates an interesting dichotomy between lenders and consumers; it's safe to assume that the finance division of an auto manufacturer is smarter than the typical consumer, being that the finance division is the most profitable part of any auto company. So, if you calculate the interest rate in relation to the depreciation that happens over the lease term, it's usually much higher than just buying one on a traditional loan.

TL;DR Leasing you're basically just paying the depreciation over the term of the lease.

 

[IndigoBlueWagon]

Lease interest rates (or the money factor) varies. If the manufacturer is trying to move a car by providing a low monthly lease rate (like they were in the sign and drive program this year at VW) the money factor can be very low, even zero. This made leasing less expensive than financing this year with VW. But it can be difficult to get anyone to reveal the money factor.

 

[greenskeeper]

by order of smartest money move:

1) pay cash

2) finance to own

3) lease

4) lease with finance to own at the end of the lease

 

[IndigoBlueWagon]

Traditionally yes, but it's not always that simple. Sometimes leasing ties up less money and costs less. On my daughter's car the money factor was lower than the financing interest rate and we got a $500 rebate for leasing. And no down payment

 

[oilhammer]

Even paying cash isn't always best if you can earn interest on said cash at a higher rate than what would be charged on the loan if financed.

Of course, right now interest paybacks on a wad of cash is not really great.

 

[hutchmanhd]

Each time you make a major purchase, your individual financial situation has to be evaluated. If you have money invested is a diversified manner that is making 5 - 10%, using that money to pay cash is not a good plan.

Blanket statements such as "it's better to pay cash" are only true sometimes....... If you have all your money in a low yield account that is not making a decent return, you need a different financial adviser.

 

[oilhammer]

The other angle is, if you own the vehicle outright, you can often have lower insurance costs which may offset some of the interest you might make on your savings.

Cars are becoming SO expensive to buy, and they seem to depreciate faster than ever, and people are getting loans even longer and longer. Someone just told me Ford has 7 year loans on new cars now. That's nuts. If you need 7 years to pay a new car off, you shouldn't be buying a new car.

 

[kjclow]

7 year loans have been around for a few years. It is hard to imagine paying for something that long that looses value so quickly. At 15,000 miles a year, that means that you'd have over 100,000 miles on the car before it's payed off.

 

[993er]

Anyone know how leasing works?

It boils down to making car (leasing) payments every month for the rest of your life. Talk about a bad deal.

 

[TomJD]

Lease interest rates (or the money factor) varies. If the manufacturer is trying to move a car by providing a low monthly lease rate (like they were in the sign and drive program this year at VW) the money factor can be very low, even zero. This made leasing less expensive than financing this year with VW. But it can be difficult to get anyone to reveal the money factor.

When is the best time to lease? Is it during the sign then drive program with VW?

 

[IndigoBlueWagon]

You have to ask, because they don't advertize some incentives. The sign then drive event was not on when we leased my daughter's car, but the rates were very favorable. They were running a different promotion that wasn't heavily advertised. When I bought my '02 (long time ago, I know) I got 0.9% for financing (loan) for two years and $500 cash back for taking the financing. I had planned to pay cash but the deal was good enough that I took it. So it varies

I hate having a car payment, enough that I recently called VW Credit about paying off the lease on my Golf. No real penalty for early payoff, but I'll probably let it run its course and then buy the car.

 

[nikhsub1]

I hate having a car payment, enough that I recently called VW Credit about paying off the lease on my Golf. No real penalty for early payoff, but I'll probably let it run its course and then buy the car.

Not a good idea and here is why: If you payoff your lease and you total the car or the car gets stolen, you get ZERO back from the loss or theft since you don't own the car... This is also why I will NEVER EVER put once red cent down on a lease as cap cost reduction. If something happens to the car you are out that cash forever. This is something that most people don't realize.