How bad did I mess up?

Well, I needed a truck last year. Went shopping around, drove a Tundra, had to try one out.

Buddy of mine only leases vehicles and swears by it, so I gave it a shot. Figured I’d lease it for a couple of years and buy it if I liked the truck. Well, obviously I love it and want to buy it.

Here’s all the details I can remember...

2018 CM SR5 with upgraded TRD package (center console and nav and all the sensors). $42k price tag after haggling.

I didn’t want a $500/mo lease payment so I put like $3500 down (big mistake?). I pay $370/mo for the lease.

They told me I can buy it from them after 3 years at $32k I think. Seemed like a good deal based on what 3 year old tundras were selling for at the time.

Now, based on another members post I’m worried that I messed up doing a lease. I think my payment will be at least $600/mo when I try to buy it unless I put a ton more money down. Not ideal...

Are leases always bad?

 

If you dont plan on keeping it or modifying it , a lease may make sense.
I got burned by a lease on a 2001 4Runner, absolutely horrible situation that a "friend" got me into when he worked at a dealership.
I lost money and went negative in a different rig trying to get out of that lease.

 

Yeah I like to modify. I’m slow ($ goes other places), but eventually my truck will have additions.

After leasing I’m starting to realize I’m more of the buy and hold kind of guy.

Any good tricks to make this go smoother when I buy it in 2 years?

 

at the end of the day the price that was agreed is the same buy or lease. You still pay for that $42K + taxes no matter what. Granted the first 3 years of the lease you pretty much only pay half of the cost but as soon as 3 years is up you will have to pay remaining balance either cash or loan but APR is usually higher on used vehicles. People buying $42K vehicles should expect a $500 /month payment depending on down payment.

 

I say start looking into used cars loans from your credit union and have a decent cash payment as well.

 

If you can buy that truck , just take care of it and save your money for when you own it. Them , mod it. Things comes up, things change , and maybe you get a better deal later on a newer better truck.

 

save that mods money to pay off your truck at the end of the lease then mod it after when you own it.

 

My wife bought a 2012 Camry, then 3 years later got tired of it and decided she wanted to be back in an Acura instead. Looking back I realized she settled for a cheaper car because she thought she was doing us a favor since we were buying a house at the time. But once we got past that she got the itch to be back in an Acura again. We bought the Camry, then had to sell it and take the depreciation hit to get the Acura. IF I had it to do all over again I would have listened more closely to her tone in 2012 and made her lease the Camry with little or nothing down, so in 3 years when we got settled she could walk away with that 5 or 6K down payment still in her bank account and buy something different.

Most other times I've known people to lease it never made sense to me. For 3 or 4 years they're paying 300 bucks per month. Then they turn around and buy the car and they're paying a few hundred bucks per month for another 3-4 years. IT turns into 7-8 years of payments. They've already been bored with the car for a long time when they finish paying for it, and ready for something else. Easily creates a cycle where you have very little time without paying on the car.

Seems like a VERY expensive way to buy cars the way I see people around me do it. They always try to explain to me how it's better than making a down payment on a car, paying it off in 3-5 years, then holding it a few years after that. I never can wrap my head around it.

But if you want to just walk away in a few years it makes more sense than sinking a down payment into it to get a low payment only to sell the car in less than 5 years.

 

During a lease, you are only paying the depreciation of the vehicle during that lease agreement. You are correct in that the amount owed at the end of the lease seems fair compared to what other vehicles are selling for. That is not a coincidence. The dealership knows that at the end of your lease, a 3yr old truck with 36K miles on the odometer will sell for $x amount. This is why 2yr leases and leases with lower mileage allowances are cheaper; they will be worth more at the end of the lease. Typically, you can do minor mods without issue, especially if they are OEM parts used, i.e. TRD Pro gill, color match mirrors, door handles, etc. Other mods, just keep the factory parts and then replace before turn in.

Most car manufactures are the same when it comes to lease turn ins. They expect "normal" wear and tear of a 3yr old vehicle. They expect a certain amount of tread left on the tires. No dents larger than credit card size.

You can also trade in a lease at any time as if you own the vehicle. Your truck, regardless of whether or not you took out a car loan, paid cash, or leased, has a value. At anytime, you can trade it in as long as you are not in the red with it. However, rarely will you have equity in lease bc, again, you are only paying the depreciation.

 

I want to keep the truck... looks like I’ll just have to suck it up and save now for a lower payment later.

 

Do you think the purchase price at the end of the lease is negotiable? Even though they told me what it would be I would like to think I can still squeeze them a little.

 

I wouldn't think so bc the residual value of the truck is one of the key factors that goes into determining the monthly lease amount you pay. I could be wrong, can't hurt to try.

I'm curious, what is the residual on a Tundra? On my wife's BMW 3series, the residual is 61% for a 3yr 12K miles/yr lease

 

I am just going to lay some math out here

42,000 negotiated price

3,500 down
+13,320 total lease payments (370 X 36 months)
16,820 is what is is costing you to drive this truck for 3 years

32,000 purchase price at the end of the lease
+16,820 (see above)
48,820 is what that truck will cost you if you write a check for the entire buyout price at the end of the lease

If financing I am just going to go with no money down for this calculation and a 5 year note at a modest rate

32,000 @ 3.9% for 60 months is 587.89

587.89 X 60 months is 35,273 which is 3,273 in interest

48,820 total cost of the truck before financing/interest
+ 3,273 in interest based on the above calculations
52,093 is the true cost of the truck at the end of the finance terms.

Please let me know if I missed something.

 

In my case with the 4Runner , the purchase price was negotiated at the beginning of the lease. The dealership has to make their money up front just in case you trash the truck before you give it back. otherwise , you could ruin a 50K vehicle and thrash it , then claim its only worth $10K , and the dealership is out the difference.

 

Just follow along with some math here. We're just going to use the $42k as the amount "owed" for the vehicle, as if you were to purchase it.

$42k minus your $3500 down payment brings your amount owed to $38.5k.

$38.5k minus ($370 x 36 payments) brings the amount "owed" down to $25.2k

You buying the truck after 3 years for $32k is essentially a LOSS of 7k. Obviously this math isn't perfect and doesn't account for interest, but you get the point.

In my opinion, it's kind of like renting vs. owning a home. They each have their positives and negatives, but generally speaking, owning will provide more equity than renting ever will.

 

Very well written, I guess I should have hit refresh before I made my similar post

 

Note that in the monthly lease cost prorated state taxes, insurance (GAP or others) and fees are included vs paying lump sum to DMV/state when buying.

 

when I leased my Camry, the only difference is how you finance. Price you buy or lease is the same. Let's say 30K vehicle with 3 years lease: residuals were 17K, I put down 4K and my lease is 9K /36 months + state/dmv/insurance fees for the next 3 years. There is no surprise, it's the exact same price at the end. You negotiate the price of the car, not how you finance it: own or lease comes after. As soon as you drive that car off the lot and if you plan on keeping it, you already know you have to come up with 17K in 3 years to buy it. So either save to pay for it or get a used car loan which is higher than new cars.

 

Good thought. But you are only saving the tax difference between the price new vs. the buy out price correct?

But then I guess you don't pay personal property on a lease is that correct?

 

yes, pretty much you are paying taxes and fees for the cost of the lease (car price minus the residuals) and you will have to pay the rest if you wish to buy the car at the end.
Also on a lease since the car is new and Toyota still owns it, they offer a GAP insurance that they will include in the lease monthly...

 

My basic 2015 SR5 TRD OR which msrp was about $40k, the residual was about $26k.

 

I did the same thing once, traded a paid in full car for a new Toyota, I got 8000.00 for the trade and applied to to my lease. Problem is when you do that all you are doing is lowering your payment on the lease, not the car value. So when the lease was up all I ended up doing was throwing away 8000.00. I will never lease again. Good luck.

 

that money was thrown away anyways, when you buy a new car as soon as you drive it off the lot it lost 5K already.
cars are a bad investment no matter what but we need them

 

Not really, if you keep the car it’s not, but you lease a 40,000.00 car, like was my case. Put 8000.00 down one would think the car value would be 32,000.00. Not true. My payment would of been like 300.00 a month, but with the money I put down all it did was lower my payment to like 90.00 for 3 years. The 8000.00 was not applied to the purchase price but rather lowering my payment for 3 years. My first and last lease. All figures in the above are just examples.

 

Yep, I am not a lease fan at all. People can prove me wrong, but I have yet to see where a lease is a good thing as a number crunching CPA. Your math is probably correct. He could 100% finance a brand new Toyota Platinum with Toyota 0% financing and be $3 to $4 k ahead of where he will be unfortunately. For stupid rich people who just don't care and want to drive the nicest new Lexus and not stroke a $60k check up front then lease makes sense.

I am personal friends with the owner of a Chevrolet dealer and is actually stand up guy and will try to steer someone away from leasing and buying even with higher interest rates from banks you usually are ahead.

 

Yup. Same numbers as OP. $42K sales price, $32K residual. No money down as Taco had LOTS of "equity" so monthly as $325. I put a bunch of money down at purchase and got a 6 year loan to keep payments low but knowing I'll pay off much sooner (couple of years) so I didn't want a $600 payment either.

On a lease you are financing the depreciation value of the vehicle, Unfortunately (or fortunately depending how you want to look at it) Yotas don't depreciate much which is why initial lease cost is low and you pay in the back end (giggity).

Don't look at it as a "mistake", look at it as you did what made sense to you financially at the time.

 

exactly.

 

Right that’s how I ended up looking at it. Good advice.

 

This is good advice. Even if it doesn’t feel right now, you live and learn and do better next time. Worst thing to do is make a second mistake to fix your first mistake (as you see it)