RX - 2nd Gen (2004-2009) Discussion topics related to the 2004 -2009 RX330, RX350 and RX400H models

1Pay Lease

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Old 10-09-06, 08:49 AM
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Ms350
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Default 1Pay Lease

I'm in a unique (to me) situation where I just took delivery of my new RX350 but I have a week to decide how I want to pay. I want to make sure I understand the pros and cons of these options, so please help me tear them apart! Bear with me while I try to provide enough details....

Originally, when we decided to get an RX350, we debated if we wanted to

1) Put enough down so that we just financed an amount equal to the current loan we already had on the Toyota the RX is replacing. The big down payment was coming from a recent HE loan we had taken to remodel our kitchen and some other home improvements. The end result was that in 4 years, we would own the car outright and finally be done with car payments, but in the meantime, all would feel the same financially. Interest rate would be 5.75%

***OR***

2) Pay cash. The kitchen planning was proving to be more difficult and time consuming than we ever imagined so the money has been sitting in the bank for months anyway. If we bought the car outright, we were done with payments! (well, except the HE payment we are paying anyway) If, down the road, when we get started on the kitchen, we need the money we used for the car, we could just take out the loan then. Interest rate unknown.

We decided on the Cash. We arrived at the dealership and they asked if we'd rather do the one pay lease. According to the salesman, this lease is geared towars cash buyers, and the Advantage to Lexus is that they would make a small amount more on the deal (money factor = about 2.7%) and that there is a greater chance we may be back sooner to switch into a newer car.

The advantage to us, is that we can invest the remaining monies we would have paid, and according to their example, if it made 4.5% over the 3 yr lease, we would be $1900 (give or take, the paper is not in front of me) to the good. I have not tested their figures, Sales price is the same.

Here are rough figures. Again, nothing in front of me... Sale Price $41795. One lease pmt of $20,900 (includes sales tax of 8.4% and gap insurance) Residual is roughly $26K. Again, money factor equals roughly 2.7% 3 yr lease, 12K miles (more than enough for me)

The interest rate I am currently earning on the $ in the bank is 5.25% (Of course I will be paying taxes on these earnings) We would also have an advantage if I did tire of the car in 3 years, I can give it back. Also, if the car sustains damages that reduced the resale value, it's not my problem.

We are seriously considering this, since we would be payment free for the next 3 years, the money is currently earning 5.25 in the bank now, but we would only be paying 2.7 on the lease. I divided the down by 36 mths, comes out to approx. 585 a mth. I was quoted a regular 0 down lease (money factor = about 5.75%) for 36 mths would be about 658. per month. A difference about 73 bucks a month.

Please tell me why I would be better off just paying the cash.....Or is this REALLY a better way to go?
Old 10-09-06, 09:23 AM
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tfischer
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I'm no financial wiz, but paying cash is always the best for you in almost all instances. If the dealer were not making money on the "lease," he would not have it on his menu.

Buy it now and sell it when you are done with it (figure 10 years for a car like this).

That's my opinion.

There'll be no charge for that.
Old 10-09-06, 11:58 AM
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xfirechief
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I did a one pay lease 3 years ago & it does save you $$. After the 3 years were up I bought the vehicle at a great price & will drive it maybe another year or 2 & then trade it in or sell it outright. Only paid 23K for it when they are selling for near 30K.

I think this is the way to go to save the most money.
Old 10-09-06, 05:59 PM
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rxdriver
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If you really want to buy it later, why not buy it now and avoid the 2.7% interest charge? I still say that if the residual value results in a good buy at the end of the lease, then the lease was too expensive; then you're paying 2.7% on depreciation that didn't actually occur.

If you own it, you can sell it tomorrow or 5 years from now - you have total flexibility. With the one-pay lease, you're still driving someone else's car, and you're still obligated to the terms of a contract.
Old 10-09-06, 06:34 PM
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TripleDES
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Jan,

You're in a good position with this dilemma. You might even want to consult with a financial analyst to determine if the interest gained on your money saved is really worth it. The advantage of a lease is that you're placing the majority of the risk with the bank. You don't have to worry about depreciation especially if some type of accident were to occur that would lower your resale value. In three years, you wipe your hands clean regardless of what happens if you so choose.

I guess the only downside would be you may have to treat the car as if it wasn't your own. If you had customizations in mind you would now be limited in what you can do to the vehicle.

If I was in your position, I would treat it with returning the RX in mind because if you decide to keep it after three years, chances are you would be overpaying. The great thing is you get a new vehicle in 3 years and perhaps the newly designed 2010 RX390.
Old 10-10-06, 08:37 AM
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Ms350
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Default I'm getting mixed opinions here and otherwise....

I'm absolutely no math wiz, so is this really what it boils down to or am I missing something?........

Buy Cash = $45395. Out the Door. Done.

1Pay Lease = OTD, Price $45429.

Pay 20,974 (keeping 24,455 in bank)
Assuming $24,455 in savings @ 5% (I'm currently earning 5.25%) for 3 yrs. $$ grows to 27707.00 AFTER taxes (assuming 15% tax rate) Residual in 3 yrs $26041.00

$27701.
-26041.
1660

SO I would be $1660.00 to the good (providing I didn't touch the $ in the 3 years and the savings rate stays about where it is now) and have an option to give it back in 3 years if there had been damage that ruins it's resale value?

Sure, I am paying them $1620.00 more for the car but I would still be making an additional $1660.00 in the end too, right? Or, does it really become a wash? I'm so confused!
Old 10-10-06, 09:57 AM
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TripleDES
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Did you include the taxes you would be paying on the interest earned? If it's a wash, I would personally go for it. Nothing like having the option of returning a car and getting a new one if you so choose.
Old 10-11-06, 05:54 PM
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Ms350
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For anyone interested, we've decided to just pay cash (oh, and the Lexus Credit card for some of it!) and buy the vehicle when we go in Saturday. it will feel good to actually own the vehicle!

The lease situation is confusing us and no one at Lexus has been able (or willing) to bottom line this for me in a way I feel confident in. Besides, I am irked enough at the Saleman for jacking up the price of my car (see my "rant" posting) and really don't want to give him another dime I don't have to give him.

Also, I've realized, having never leased before, that I've always run the risk of wrecking the cars I've owned and sending the resale value into the toilet. What would really matter more to us if this happened is not the resale value as much as the hope that everyone would be okay.

What will be will be I guess.
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