Is there a significant difference between leasing and buy-out, versus 6-year financing?

[ensnare]

I see a lot of lease vs. buy threads on the forum but not many lease + buy out versus finance threads. I'm trying to think through leasing versus financing of a Model X, and the idea of leasing for 3 years to see if I like the car and then having the option to either return it or buy it out seems very attractive to me. The alternative is financing it for 72 months @ 2.5% APR.

If I lease the car, is the buy out cost calculated at the beginning of the lease or is the market value at the end of the lease? And how is the buy out cost calculated? For example leasing might still protect me from 3 years of high inflation if the buy out cost is calculated at year 0 instead of year 3.

Anything I'm missing here? Thanks!

 

[Ogre]

From what I understand Tesla doesn’t give the option to buy out a lease at the end of the term. You should verify that before anything else.

Aside from that, the other big risk is interest rates go up in the 3 years.

 

[ensnare]

They allow buy outs for the Model X. When you say higher interest rates in 3 years, do you mean if I finance the buy out? Or is the buy out cost somehow dependent on interest rates at the time of buy out

 

[MG535]

Correct, interest rates would come into play if you financed the buyout. Also keep in mind that would qualify as a “used car loan” which typically has higher APRs than new car loans.

On the Model 3, people here have financed new cars thru credit unions for as low as 1.24% for 60 months IIRC.

 

[ensnare]

Thanks. I’m wondering if interest rates would also affect the buy out cost, before financing. How is the buy out cost calculated? Is it calculated at the beginning of the lease, or marked to market at the end?

 

[Double-O]

When leasing cars, you're given the residual value of the car during signing of lease. That price shouldn't change. That would be your buyout price at the end of your lease. As it has already been mentioned, used car interest rates are usually higher. If you're not financing the balance at end of lease, then obviously that part doesn't matter. From a numbers perspective, teslas typically have a ridiculously horrible lease rates. The way the market is right now, all manufacturers lease numbers are probably bad. Putting money down when leasing is 100% a waste. A good general rule of thumb is with 0% down, lease payments equivalent to 1% of msrp would be considered a good deal (example $100k car = $1000/mo lease payment) but given the fact that tesla doesn't negotiate pricing, you're gonna get screwed on leasing. If you can afford it, finance it n buy it. If you end up not liking it, selling the car will be easy and if the market continues like this into next year, you'd probably make money on the sale too.

 

[ensnare]

Thanks very helpful. I also thought the buy out cost / residual was provided at time of lease, but on the Tesla site under lease end options there’s a section that says “request an estimate”

Lease-End Options | Tesla Support

If you’re looking to return your vehicle and upgrade before the end of your lease, we offer several options to end your lease early.

www.tesla.com

To me that sounds like the car’s residual will be valued at the 3 year mark, in which case inflation can hit hard. Wondering if anyone has gone through this process?

 

[MG535]

Thanks. I’m wondering if interest rates would also affect the buy out cost, before financing. How is the buy out cost calculated? Is it calculated at the beginning of the lease, or marked to market at the end?

It’s calculated at the beginning, and should be set in stone on the lease contract.

 

[Double-O]

It’s calculated at the beginning, and should be set in stone on the lease contract.

Only the buyout price is set during lease signing. Financing (rate/terms) the buyout price at the end of lease is not.

 

[MG535]

Only the buyout price is set during lease signing. Financing (rate/terms) the buyout price at the end of lease is not.

Correct. By “it” I meant the buyout price.

Financing the buyout and finding the best terms, that’s on the lessee anyway. Of the major captive lessors, I don’t know of any that finance the buyout of their leases.

 

[jjrandorin]

Correct. By “it” I meant the buyout price.

Financing the buyout and finding the best terms, that’s on the lessee anyway. Of the major captive lessors, I don’t know of any that finance the buyout of their leases.

I just did this exact thing in Dec of 2021 with BMW Financial Services for my wifex X3 Lease that was expiring in Jan of 2022. By "This exact thing" I mean finance the lease buyout residual, with the resultant loan back with BMW FS. BMW FS has a third party that facilitates it, but the loan for the residual is with BMW FS, just like my lease was.

Of course, as I think people are saying, lease buyout financing is set at that time, only the residual (price to buy it) is set by the contract ahead of time. How you pay for the residual in a lease buy out situation is up to you, and whatever options are available depend on who its with in the first place.

 

[MG535]

I just did this exact thing in Dec of 2021 with BMW Financial Services for my wifex X3 Lease that was expiring in Jan of 2022. By "This exact thing" I mean finance the lease buyout residual, with the resultant loan back with BMW FS. BMW FS has a third party that facilitates it, but the loan for the residual is with BMW FS, just like my lease was.

Of course, as I think people are saying, lease buyout financing is set at that time, only the residual (price to buy it) is set by the contract ahead of time. How you pay for the residual in a lease buy out situation is up to you, and whatever options are available depend on who its with in the first place.

Interesting. What was the process and who was the third party?

 

[jjrandorin]

Interesting. What was the process and who was the third party?

its one that handles BMW Lease buyouts and it was called " RefiJet". When I contacted BMW FS to buy out my lease, they gave me the number for this company, who processed everything on BMWs behalf. My lease was with BMW FS (as almost all BMW leases are) and my loan is with BMW FS. I ended up with a different account number on my BMW FS account, but its definitely still with BMW FS.

They actually had incredibly good rates for me as well. I was able to finance the residual at like 2.1% interest, which is lower than many new car purchases, but I do have about 830 or so credit score, and have been a BMW FS customer for various leases for like 12 straight years.

 

[nilesh666]

I have a similar situation. I have a Model S which i leased almost 4 years ago and runs out in June. My options are give the car back or buy out. A major factor in that decision is that I have free fast charging for life when i got the car and i would have to give that up if I give the car back and potentially get a newer Tesla. My model S still looks good and i have only done about 35K mileage on it. Any new Model S will look the same. I know the Plaid will come soon but don't believe it will be available in June in the UK? I use the free charging a lot and find it very convenient. Is the free charging too much of a value to give up?

 

[Double-O]

That is your decision to make n no one elses. Depends on your access to charging, out of pocket cost for charging if you gave it up, convenience of charging elsewhere, etc. I charge at work for free and while I have a 30amp setup in my garage, I haven't had to use it but once over a weekend. You don't seem to drive too much based on mileage but that's still money you're saving. If the changes in a newer model S is justifiable, then you'll get a new one. If not, I'd keep what I have n buy it out. You still have plenty of time to not worry about the battery.

 

[Ogre]

I have a similar situation. I have a Model S which i leased almost 4 years ago and runs out in June. My options are give the car back or buy out. A major factor in that decision is that I have free fast charging for life when i got the car and i would have to give that up if I give the car back and potentially get a newer Tesla. My model S still looks good and i have only done about 35K mileage on it. Any new Model S will look the same. I know the Plaid will come soon but don't believe it will be available in June in the UK? I use the free charging a lot and find it very convenient. Is the free charging too much of a value to give up?

Check the Tesla app and see what your charging would cost you if you’d been paying. Not sure about your area, but for me the average price seems somewhere around $0.35/ kWh. I only Supercharge when travelling so it’s not a huge benefit for me.