If your auto lease is set to expire in 2009, you are up for a challenge. Given the rapid depreciation of car values, banks are getting ready to sell your car back to you at the residual price, hoping that you will just bend over and pay what they ask. For instance, BMW is offering .9% financing to BMW lease customers who purchase their own car before the lease termination date. Even if you do not want to buy your car, you might be able to save some cash.
Simply contact your leasing company 90 days before lease maturity and get a payoff and purchase quote (aka: residual, which is also stated in your lease contract). Hang up and begin to do a little homework.
Have a look kbb.com, Edmunds.com, and Cars.com, and get the trade-in, private party, and retail prices on your model. Be sure to specify the options that your car has. Note the difference between the market value and the residual price for your car. If the price difference is more than $2,000, call your bank and negotiate.
Negotiate
How? Simply explain to them that you plan to obtain a loan from your (bank or credit union) to purchase your car, BUT, the (bank or credit union) cannot lend to you because the purchase price of the car, based on the residual, is over market value. Go so far as to state that “Even with a $10,000 down payment, the bank says that they cannot lend money when the price is above (insert trade-in value here).” Ask the lease company for assistance, suggesting that they “adjust the residual price in order to obtain the loan from your (bank name or credit union).”
This is a simple, innocent question and it does not hurt to ask, even if you believe you are lying to them.
If they ask for the bank or credit union name, do not give it to them. Just state that your “local branch manager told you the bad news about the price being too high.”
If the leasing company comes back with an agreement on a new residual price, explain that “you need the new purchase price in writing so that you can submit it to the (bank name or credit union) for approval.” This is very important, because you need to get a new purchase price in writing. It is not uncommon to see a bank erase, that is correct, ERASE several thousand dollars off your residual. If they offer a discount, you want proof.
Most importantly, if a new residual price is placed on your contract, make sure that it does not obligate you to a new monthly payment in the meantime. Be diligent and ask the leasing company if this new price, pending your approval by (your bank or credit union), will affect your credit report, any current obligations under lease, or the terms of your lease. Most likely, it will not, as most lease companies would rather have a customer purchase their liability rather than give the car back to them.
Even if you have no intentions of buying your car, you can still sell it on the market. There are three reasons for why you would want to do this:
- You are seriously over mileage on your current lease, and the fees assessed upon termination add up to thousands of dollars
- You know you want to trade your car in.
- A high-milage lease that you want to trade in.
OVER MILEAGE
If you are grossly over mileage, you might be able to mitigate your damages if you sell the car. For instance, if you are 20,000 miles over your lease and face a $.20 per mile penalty, you are looking at a $4,000 charge when you return your car. Do you have that kind of money lying around? If not, getting the residual closer to market value means that you could still sell the car at a $3000 loss, and STILL SAVE MONEY.
TRADING IN
If you are trading in your car, be sure you know what your new residual is. Bring in your lease contract with the original residual value if you must, but also bring in your letter from the leasing company showing a new purchase price. The dealer is going to try and pack you several thousand dollars, and they are not going to be honest about it. The value of your trade-in should be harder for the dealer to pack you because of your updated residual. If you successfully negotiate a great price and terms for your new car, you just got a deal.
Just imagine what your trade-in would be if you did not get a new residual from your leasing company.
THINGS TO KNOW
Of course, selling your car is a PITA these days. If the new residual price is right, why not seize the moment and maximize on your opportunity for the next 90 days to dump that car?
Before you go through all this, understand that selling your own car these days is likely not to happen. So getting your leasing company to change the residual will not work if you tell them you are trading in your car.
These days, it also helps to know your credit score before you hit the showroom floor. Going to CreditReport.com and pulling your credit report and credit score can prepare you to battle with the car dealer. TopGearage will post more on that shortly.
Good luck.
Tags: BMW, car loan, credit score, free credit reports, lease
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