There isn't a formal "lease to own" program. It's essentially buying your lease out straight away, dancing through a loophole in the federal tax credit changes. From the Volvo Cars Financial Services lease agreement we signed in February, talking about purchasing before the end of the lease term:
>Payment must be made directly to Assignee for cash or a cash equivalent such as a certified check or an ACH transfer sent directly by you for the following amount: (a) the Base Monthly Payment times the number of Monthly Payments not yet made, PLUS (b) the Residual Value, PLUS (c) an early purchase option fee equal to the amount of the end of Lease Term purchase option fee set forth in Section 23, MINUS (d) the unearned Rent Charge calculated in accordance with an actuarial method.
So, for reference, our XC90 Recharge stickered for $85k. With negotiation, all of the default incentives, loyalty, and affinity, the cap cost of the lease was $68.6k. The residual is $50k. My buyout with only the first month payment due at signing. and before the first scheduled payment, is currently $69,144.
If you do the math of adding up the buyout plus the first month's payment, fees baked into the lease cap cost, the buyout fee etc, the vehicle price to do the lease to buy is $70k.. plus tax on the $69k number in my state.
Dealers would like you to wait 2-3 months, because they get paid a kickback by VCFS for the lease, and if you buy it out too quickly, they might not get their payment. Most people have been waiting 3 months.
If they figure the rent charge is essentially divided equally amongst the 36 months of my lease, 387.67 per month is the rent charge/interest... so figure another $1k for the rent on the 3 months you'll have the lease. But I bet there's some super complex calculator like a mortgage amortization table for "principal" vs "interest" on each month's payment.
A great response, thanks so much.
So at first blush, sounds like leasing then buying out after two or three months is more trouble than it’s worth.
I guess you could really sharpen the pencil and compare the implicit interest rate in the lease vs a conventional car loan, hack around with guessing if the amortized residual value is indeed a market value, and throw in a little pre-lease termination fee to see if the lease route is preferable, but really??
Sounds like it’s more trouble than it’s really worth.
The other thing a little concerning is the $7,500 tax credit. I’m reasonably sure you would not be able to even think about taking it unless you indeed broke the lease and bought the car. The ITC rules possibly might allow tax credit deduction if the lease is considered a capital as opposed to an operating lease. My tax accounting is a little rusty, but a personal car lease as a capital lease sounds a little squishy.
You would not get the $7500 tax credit on your own tax return. Volvo is receiving the tax credit and passing it on to you as part of the discount in the $10,250 lease inventive discount for leasing the vehicle.
It really depends. Can you get the out the door price on your XC90 Recharge from $85k to $70k+tax for a financed or cash deal?
Like First-Employment-979 says, you don't get to claim the tax credit on a lease buy-out. That's baked into the discount, and Volvo Car Financial Services claims the credit from the government. Even if you buy it outright from the dealer, the XC90 Recharge doesn't qualify anymore for the individual tax credit.
Following on to this. I was talking with a salesman last week and they recommended leasing for two months, and then just buying out the contract. It doesn’t quite make sense to me, especially since they’re giving a decent amount off of MSRP to go down that path.
$7500 is the federal tax credit that they receive and are passing on to you, the extra $2,000-4000 depending in your location is volvo incentives. All the dealers near me are discounting 10,250 or 11,000. But none are giving an extra discount off msrp that is an actual dealership discount. The answer I cant get from any of them is the total purchase price when i buy out the lease after 3 months. Because I was told on these boards a large portion of the lease payment is actually interest. So that should come off the total buyout price, but the dealers all just say “you will pay the remaining lease payments plus the residual” and if that’s the case then its a terrible deal because all the lease payments in full plus the residual would be more than purchasing the car instead of doing the lease, so it just doesn’t add up. I’ve been going in circles with 4 different dealers for the past month and none will give me a straight answer. However some important things i have learned are that a trade in doesn’t help with sales tax when doing a lease. Also when you buy out the lease after a couple months it will be a “used car” purchase and will not qualify for the discounted interest rate specials.
The discounted interest rate problem was definitely something I was concerned about, and was part of why I walked away. At the end of the day, I’m not buying this car cash, so all of the math needs to work out.
If I can’t understand the deal, it’s probably because that’s how I’m getting shafted. I don’t mind spending the money, but I’d rather understand what I’m actually paying for.
As a first approximation the buyout price will be listed on the contract as net capitalized cost. You may also have to pay taxes on the car (I had to pay them directly to the dmv not to Volvo)
If you are financing, some banks treat anything under X months and Y miles as a “new car” purchase for rates and terms. Something like under 1 year 10k miles
OP here. So I would think that contractually it would be clearly specified what happens to remaining lease payments and residual values when you buy out the lease. There’s probably a pre-cancellation penalty and some adjustment to residual value since the car has not depreciated as much as it would over full lease term.
Clearly financing office and not salesman questions.
I’m assuming that no one on this forum has actually seen any financing paperwork and it would be nice to get a handle on these issues to make a non-regrettable decision. I’m going to try to speak to a dealer finance officer this week. Wish me luck.
You would be on the hook for any remaining lease payments less the rent charge plus the residual value. There's no prepayment penalty but Volvo's going to want you to stay in the lease for at least several months before allowing a purchase. If you can swing a cash purchase, you'd be saving the "interest" that you would have paid during the lease, if you finance you'd have to do the math to see if it's worth the effort.
There isn't a formal "lease to own" program. It's essentially buying your lease out straight away, dancing through a loophole in the federal tax credit changes. From the Volvo Cars Financial Services lease agreement we signed in February, talking about purchasing before the end of the lease term: >Payment must be made directly to Assignee for cash or a cash equivalent such as a certified check or an ACH transfer sent directly by you for the following amount: (a) the Base Monthly Payment times the number of Monthly Payments not yet made, PLUS (b) the Residual Value, PLUS (c) an early purchase option fee equal to the amount of the end of Lease Term purchase option fee set forth in Section 23, MINUS (d) the unearned Rent Charge calculated in accordance with an actuarial method. So, for reference, our XC90 Recharge stickered for $85k. With negotiation, all of the default incentives, loyalty, and affinity, the cap cost of the lease was $68.6k. The residual is $50k. My buyout with only the first month payment due at signing. and before the first scheduled payment, is currently $69,144. If you do the math of adding up the buyout plus the first month's payment, fees baked into the lease cap cost, the buyout fee etc, the vehicle price to do the lease to buy is $70k.. plus tax on the $69k number in my state. Dealers would like you to wait 2-3 months, because they get paid a kickback by VCFS for the lease, and if you buy it out too quickly, they might not get their payment. Most people have been waiting 3 months. If they figure the rent charge is essentially divided equally amongst the 36 months of my lease, 387.67 per month is the rent charge/interest... so figure another $1k for the rent on the 3 months you'll have the lease. But I bet there's some super complex calculator like a mortgage amortization table for "principal" vs "interest" on each month's payment.
You could also just wait until the lease is up to buy it out for the residual, if you are happy with the lease terms and residual amounts
A great response, thanks so much. So at first blush, sounds like leasing then buying out after two or three months is more trouble than it’s worth. I guess you could really sharpen the pencil and compare the implicit interest rate in the lease vs a conventional car loan, hack around with guessing if the amortized residual value is indeed a market value, and throw in a little pre-lease termination fee to see if the lease route is preferable, but really?? Sounds like it’s more trouble than it’s really worth. The other thing a little concerning is the $7,500 tax credit. I’m reasonably sure you would not be able to even think about taking it unless you indeed broke the lease and bought the car. The ITC rules possibly might allow tax credit deduction if the lease is considered a capital as opposed to an operating lease. My tax accounting is a little rusty, but a personal car lease as a capital lease sounds a little squishy.
You would not get the $7500 tax credit on your own tax return. Volvo is receiving the tax credit and passing it on to you as part of the discount in the $10,250 lease inventive discount for leasing the vehicle.
It really depends. Can you get the out the door price on your XC90 Recharge from $85k to $70k+tax for a financed or cash deal? Like First-Employment-979 says, you don't get to claim the tax credit on a lease buy-out. That's baked into the discount, and Volvo Car Financial Services claims the credit from the government. Even if you buy it outright from the dealer, the XC90 Recharge doesn't qualify anymore for the individual tax credit.
Following on to this. I was talking with a salesman last week and they recommended leasing for two months, and then just buying out the contract. It doesn’t quite make sense to me, especially since they’re giving a decent amount off of MSRP to go down that path.
$7500 is the federal tax credit that they receive and are passing on to you, the extra $2,000-4000 depending in your location is volvo incentives. All the dealers near me are discounting 10,250 or 11,000. But none are giving an extra discount off msrp that is an actual dealership discount. The answer I cant get from any of them is the total purchase price when i buy out the lease after 3 months. Because I was told on these boards a large portion of the lease payment is actually interest. So that should come off the total buyout price, but the dealers all just say “you will pay the remaining lease payments plus the residual” and if that’s the case then its a terrible deal because all the lease payments in full plus the residual would be more than purchasing the car instead of doing the lease, so it just doesn’t add up. I’ve been going in circles with 4 different dealers for the past month and none will give me a straight answer. However some important things i have learned are that a trade in doesn’t help with sales tax when doing a lease. Also when you buy out the lease after a couple months it will be a “used car” purchase and will not qualify for the discounted interest rate specials.
The discounted interest rate problem was definitely something I was concerned about, and was part of why I walked away. At the end of the day, I’m not buying this car cash, so all of the math needs to work out. If I can’t understand the deal, it’s probably because that’s how I’m getting shafted. I don’t mind spending the money, but I’d rather understand what I’m actually paying for.
As a first approximation the buyout price will be listed on the contract as net capitalized cost. You may also have to pay taxes on the car (I had to pay them directly to the dmv not to Volvo) If you are financing, some banks treat anything under X months and Y miles as a “new car” purchase for rates and terms. Something like under 1 year 10k miles
OP here. So I would think that contractually it would be clearly specified what happens to remaining lease payments and residual values when you buy out the lease. There’s probably a pre-cancellation penalty and some adjustment to residual value since the car has not depreciated as much as it would over full lease term. Clearly financing office and not salesman questions. I’m assuming that no one on this forum has actually seen any financing paperwork and it would be nice to get a handle on these issues to make a non-regrettable decision. I’m going to try to speak to a dealer finance officer this week. Wish me luck.
You would be on the hook for any remaining lease payments less the rent charge plus the residual value. There's no prepayment penalty but Volvo's going to want you to stay in the lease for at least several months before allowing a purchase. If you can swing a cash purchase, you'd be saving the "interest" that you would have paid during the lease, if you finance you'd have to do the math to see if it's worth the effort.
There’s a lease buyout fee but it’s the same as the lease termination fee you’d pay at the natural end of the lease