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Math of lease extension?

Discussion in 'Model S' started by hmmm, May 31, 2017.

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  1. hmmm

    hmmm Member

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    I was researching the new end-of -ease options and was hoping some math/leasing experts could jump in (and yes, I really should reach out to Tesla, and I will but...)

    So, are the initial terms of the lease simply extended for n months or is there some sort of "reset/adjustment" to the residual, or other variables which would modify (decrease?) monthly payments? I have an unbelievable lease and would love to extend it as much as I can regardless.

    TIA
     
  2. whitex

    whitex Active Member

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    Unless your original lease includes terms for extension, your only choices are:
    a) return the car and pay any over-usage charges you may have incurred
    b) purchase the car for residual value (you can finance that as well, at used car loan interest rates)
    Sometimes you may be able to negotiate a lower buy price if the car is not really worth the residual value. If you are set on continuing to lease, I think you'll need to try to negotiate a new lease. Even if you do get a new lease, it will be a new contract based on the current residual value as the price, some future residual value, and current interest rates for used cars. It may be a different leasing company too (some companies only lease new cars).
     
  3. PhatCat

    PhatCat Kisco Kid

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    I don't know the terms of your lease so i can't answer your specific situation. But you can gain some insight by taking the perspective of the leasing company. They own the vehicle and make money from financing your right to drive it. Over the duration of the lease you essentially pay the depreciation of the vehicle plus interest on the money they allocated to buy the car.

    At the end of your lease they could sell it to you at the residual value or to a wholesaler, the latter usually being significantly lower, They might also be willing refinance it for a new period,. In this case they would compute the new lease based on the current value of the car and the subsequent depreciation and interest over the new period. This payment would generally be lower than the original payment since cars depreciate most in the first three years, especially luxury cars.

    Before my S i leased a Jaguar XJL. Near the end of the lease I contacted the leasing company (Chase) and asked if I could extend the original lease for a a couple of months to line up with delivery of the S. They were willing to do this for 6 months with nothing more than a verbal from me. Even though i had a very low payment, they knew that i was paying for more depreciation than the car was experiencing at that point, so it was a win for them. I got an end of quarter inventory vehicle at a great discount so I didn't actuality extend the lease but it was nice to have the option.

    Of course YMMV. It pays to call the leasing company and explore options. Some are willing to be flexible on buyout terms or refinancing but others are not. You may find that they really don't want the car back and will work with you. This is especially true if the residual value was set high and they do not have insurance on this.
     
  4. hmmm

    hmmm Member

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    Thank you both for your replies, you both hit on interesting points:

    For context, and I should have started with that, Tesla just announced a new "end-of-lease" option:

    Lease-End Options

    End of Lease FAQs


    Can I extend my lease?
    If your account is in good standing, you can extend your lease up to 6 months beyond the original maturity date listed on your lease.

    ---

    Based on the language, it doesn't seem like it's only applicable to lease started after this new policy came into effect. Of course most existing leases (at least mine) don't have lease extension terms anywhere since it wasn't an option at the time.

    In my case, I picked up an inv car last summer which was (very) heavily discounted so the residual is way too high for me to consider buying this car, but the payments are tough to beat (P90DL fully loaded, $745/mo inc taxes, 2yr/10k miles/$6k down) so I too would be more than happy to keep these terms for another 6 months even if the new payments "should be" even lower based on increased depreciation.

    Mind you, I have time since I have over a year left on my original lease, but based on my numbers you could imagine I was doing the happy dance when they announced the lease extension option.
     
    • Informative x 1
  5. PhatCat

    PhatCat Kisco Kid

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    I think you answered your own question.
     
  6. hmmm

    hmmm Member

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    Well, you helped validate my guesses, so thank you.
     

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