Lease Buyout Ripoff

[guitarx9002]

So I ended up buying my 2020 Ram 1500 out. North Edition, Crew Cab, extended bed. Buyout was around $31000. Credit is damaged pretty badly but I had an opportunity to get a cosigner and deal with a dealership where a family friend works out of that delt with the buyout and financing...

This might get into personal information, but I want to know what others have to say about this as this is my first time buying out a vehicle and not leasing and thoughts on what happened...

- Total Loan was about $39,850 (does not include interest @ 72 months with 9.99%)
- Buyout from leasing company was around $31,000.
- Gap Insurance and Warranty was about $1,500.
- Sales tax in OH is about $2,500.00

That leaves $4,850...

How bad did I get ripped off? I am just nervous about trading this in in the next few years if I wanted to and the bad deal I got...

Thoughts?

 

[bm02tj]

There is to many variables to answer that if you feel it was good that is all you need
If you lease again always know cost and terms of buy out so you always have an out

 

[Atcer2018]

So I ended up buying my 2020 Ram 1500 out. North Edition, Crew Cab, extended bed. Buyout was around $31000. Credit is damaged pretty badly but I had an opportunity to get a cosigner and deal with a dealership where a family friend works out of that delt with the buyout and financing...

This might get into personal information, but I want to know what others have to say about this as this is my first time buying out a vehicle and not leasing and thoughts on what happened...

- Total Loan was about $39,850 @ 72 months with 9.99% interest
- Buyout from leasing company was around $31,000.
- Gap Insurance and Warranty was about $1,500.
- Sales tax in OH is about $2,500.00

That leaves $4,850...

How bad did I get ripped off? I am just nervous about trading this in in the next few years if I wanted to and the bad deal I got...

Thoughts?

Buyout was reasonable. KBB shows private party sale at $31,500. You have no control over the sales tax and on a 6 year loan interest rates are going to be pretty high at present. Gap insurance was probably required by the lender to protect them from loss. It is what it is and you said your credit needs some TLC so you could have done worse. Enjoy the truck, pay it off early if possible, refinance if better terms become available in the future. It will help repair your credit.

 

[tron67j]

It is what it is, dwelling on it will just serve no purpose. What you do next will make all the difference.

First, you shouldn't be thinking about trade or anything else but driving this into the 2030's. Not sure if the $39k includes the 9.9% interest but will use that as total for example purposes. So drive for 10 years is $4k a year. Gets you in a decent financial position when no more payments are due in 6 years.

Do a trade in within a few years and your credit rating gets crushed again and you are really never going to get ahead.

You trade in 5 years say you owe $10k (more interest paid at first, more principal later). You get a $60k truck, you finance $75K including tax and fees and $10 k you still owe (and maybe realize $5k trade value) for 5 years at same rate you pay total of $94k. So at same point in time as above, 10 years from now, you will have paid $29k for first 5 years of current truck you just financed + $94k for second 5 years to get to the same point 10 years from now. You will pay $123k total in same 10 year period as example in second paragraph above; divided by 10 years equals $12,300 a year for this same 10 years whereas above you had zero payments for 4 of these years.

$40k over 6 years (then 4 years of no payment) and done or $123k over same 10 year period. That $83k difference will pay for a lot of repairs plus vacation plus other things.

 

[jejb]

So I ended up buying my 2020 Ram 1500 out. North Edition, Crew Cab, extended bed. Buyout was around $31000. Credit is damaged pretty badly but I had an opportunity to get a cosigner and deal with a dealership where a family friend works out of that delt with the buyout and financing...

This might get into personal information, but I want to know what others have to say about this as this is my first time buying out a vehicle and not leasing and thoughts on what happened...

- Total Loan was about $39,850 (does not include interest @ 72 months with 9.99%)
- Buyout from leasing company was around $31,000.
- Gap Insurance and Warranty was about $1,500.
- Sales tax in OH is about $2,500.00

That leaves $4,850...

How bad did I get ripped off? I am just nervous about trading this in in the next few years if I wanted to and the bad deal I got...

Thoughts?

I don't understand about the $4850, since you did not include interest. Please explain. Makes it look like you are paying $35,850 for the truck. Or do you mean that is cash to you? Or?

 

[DanAR]

Never leased a vehicle but my understanding is it’s always more costly in the end than buying. You’re just trading lesser up front costs for a screwing at the end. Opinions may vary.

 

[Docwagon1776]

Never leased a vehicle but my understanding is it’s always more costly in the end than buying. You’re just trading lesser up front costs for a screwing at the end. Opinions may vary.

It never hurts to check, as while it is the *generally* true, it is definitely not "always". I leased my wife's car then bought it at the 13 month mark to take advantage of lease only offers that made it about $1k cheaper than just paying cash up front or financing. It's a bit more common now due to EV incentives for a lease-then-buy to give you access to rebates and incentives a purchase wouldn't have, as well.

If you can write the vehicle off as a business expense, that can also change the purchase vs lease dynamic due to differences in the way loan payments vs lease payments effect taxes.

 

[Hanover Fiste]

interest @ 72 months with 9.99%

That's really high! Interest rates are usually negotiable.

 

[Scottly]

- Total Loan was about $39,850 (does not include interest @ 72 months with 9.99%)
- Buyout from leasing company was around $31,000.
- Gap Insurance and Warranty was about $1,500.
- Sales tax in OH is about $2,500.00

That leaves $4,850...

Couple things, and I'm only guessing because I don't have paperwork to look at:

A) You should have got a "Simple Interest Loan Agreement", which usually indicates the total loan WHICH INCLUDES YOUR INTEREST. Was it possible you misread that? It would explain the discrepancy.

B) GAP and service contracts normally add up to much more than what you stated. The GAP alone was probably $1K, or somewhere near that. Take a second look for the cost of those two items.

C) Unless you are leasing an electric vehicle that is packed full of government freebies, NEVER lease a vehicle. I trade mine every two-three years and know for a fact that I am better off buying them than leasing them...By THOUSANDS of $$.


That's just my $.02, it's worth what ya paid for it, and lots of other fellas on here have great advice to give.

 

[Scottly]

That's really high! Interest rates are usually negotiable.

When your FICO is up over 700, totally agree. Down below that, not so much.

 

[KYPOTLICKER]

Does not seem bad. Like others have said its done now, don't stress over it. Interest rate does seem high, make your payments on time and look into re finance when rates as well as your credit score is better.

 

[Tulecreeper]

That's really high! Interest rates are usually negotiable.

That is true - to a point. My and my wife's FICO both range between 825 and 850, and when we purchased her new Durango last month they gave us 7.9%. I probably could have gotten a little better deal, but we put 50% down and financed the rest for 60 months with the intention of making 3 payments then just paying it off so interest rate is of no concern to me. And the only reason for making the 3 payments is for the credit report thing. If you never make payments on a loan for at least a few months, your credit score/report just stagnates. Of course, as soon as you pay off the loan your score drops by 20 points, but that only lasts for a couple months then it goes back up again.

 

[mikeru]

No point in second guessing yourself on whether you got a good deal or not at this point since the deal is already done. Just drive and enjoy your truck.

 

[Docwagon1776]

That is true - to a point. My and my wife's FICO both range between 825 and 850, and when we purchased her new Durango last month they gave us 7.9%. I probably could have gotten a little better deal, but we put 50% down and financed the rest for 60 months with the intention of making 3 payments then just paying it off so interest rate is of no concern to me. And the only reason for making the 3 payments is for the credit report thing. If you never make payments on a loan for at least a few months, your credit score/report just stagnates. Of course, as soon as you pay off the loan your score drops by 20 points, but that only lasts for a couple months then it goes back up again.

If you're already established, paying a car note for a few months won't really matter. I'm at 831 at the moment and haven't financed anything since 2012 (and a lease with a buyout in 2015).

I charge nearly every purchase to a credit card and pay it off every two weeks. My oldest account is over 20 years old. My credit usage is 1% of available $116k at the moment. That keeps my payment history and account usage in the top tier.

When you're starting out, yes, establishing that history of on time payments matters a lot more. At the stage we're at, it's not moving the needle. Now you may get a kickback from the dealer to finance, so if it works out for you go for it, but paying a couple hundred bucks in interest just to bounce your credit around isn't worth it.

 

[Burla]

I know where the answer is, the paper work. Live and learn, never do this again, but now that the deal is done enjoy the truck.

 

[Tulecreeper]

If you're already established, paying a car note for a few months won't really matter. I'm at 831 at the moment and haven't financed anything since 2012 (and a lease with a buyout in 2015).

I charge nearly every purchase to a credit card and pay it off every two weeks. My oldest account is over 20 years old. My credit usage is 1% of available $116k at the moment. That keeps my payment history and account usage in the top tier.

When you're starting out, yes, establishing that history of on time payments matters a lot more. At the stage we're at, it's not moving the needle. Now you may get a kickback from the dealer to finance, so if it works out for you go for it, but paying a couple hundred bucks in interest just to bounce your credit around isn't worth it.

I didn't mean that not financing something is bad. Only that your credit report stagnates if you never pay make payments on anything. And having too much available credit is sometimes a warning sign to prospective lenders as some people have no willpower and will overextend themselves too easily. Obviously that is not the case with you. Every time I make an order online I use a major credit card; everything else I use my bank card, unless it's less than $20 then I just pay cash. Between 2 major credit cards and a couple revolving credit cards I think I have about $30k available, of which I never use more than 2% - 3% because everything gets paid off every month. And it's not costing a couple hundred bucks to finance $23k for 90 days. I calculated I'm out less than $50. And I have had my oldest credit card account for 47 years.

 

[Docwagon1776]

And it's not costing a couple hundred bucks to finance $23k for 90 days. I calculated I'm out less than $50. And I have had my oldest credit card account for 47 years.

Did you just pay off like 90% of the balance before the first payment? Even floating the full balance for a month is $151.42 in interest. Even assuming no origination fees, unless you got a kickback to cover the expense I'm not sure how you got less than $50 in interest.

Financing $23k at 6.9% on a 5 year note, making standard payments for each month, first 3 month amortization is:

Month 1: $151.42 in interest on a payment of $465.26
Month 2: $149.35
Month 3: $147.27

My available credit is reasonable in proportion to savings and income, so not a big deal there, plus I have years of low utilization. The only thing I would really suggest to you is if 'bank card' means debit card, you're opening yourself up to liability there that credit cards don't have. If you are ever the victim of fraud, you are out the money until the fraud is resolved. Credit cards are the opposite, the bank is out the money until it's resolved. I insisted on an ATM only card with no debit functionality for years, but apparently it's not a thing any longer. Luckily I can 'lock' and 'unlock' it via an app, which helps cut down the risk substantially, and I've never used it as a debit.

 

[Tulecreeper]

Did you just pay off like 90% of the balance before the first payment? Even floating the full balance for a month is $151.42 in interest. Even assuming no origination fees, unless you got a kickback to cover the expense I'm not sure how you got less than $50 in interest.

Financing $23k at 6.9% on a 5 year note, making standard payments for each month, first 3 month amortization is:

Month 1: $151.42 in interest on a payment of $465.26
Month 2: $149.35
Month 3: $147.27

My available credit is reasonable in proportion to savings and income, so not a big deal there, plus I have years of low utilization. The only thing I would really suggest to you is if 'bank card' means debit card, you're opening yourself up to liability there that credit cards don't have. If you are ever the victim of fraud, you are out the money until the fraud is resolved. Credit cards are the opposite, the bank is out the money until it's resolved. I insisted on an ATM only card with no debit functionality for years, but apparently it's not a thing any longer. Luckily I can 'lock' and 'unlock' it via an app, which helps cut down the risk substantially, and I've never used it as a debit.

I use my bank card a a credit card where I must sign the receipt, not a debit card. And yes, I got a kickback from the dealership for the first 90 days of financing. The first payment wasn't due until June 30th, but it's already been paid. The next payment will be about July 15th, and the third payment will be July 30th at which time I will pay off the balance. I've been doing this for a lot of years, I am quite adept at finances. It's how my wife and I retired in 2013 at 55 on 110% of our working income, and with the market as it has been since then it has only gone up from that point.

 

[Docwagon1776]

I use my bank card a a credit card where I must sign the receipt, not a debit card. And yes, I got a kickback from the dealership for the first 90 days of financing. The first payment wasn't due until June 30th, but it's already been paid. The next payment will be about July 15th, and the third payment will be July 30th at which time I will pay off the balance. I've been doing this for a lot of years, I am quite adept at finances. It's how my wife and I retired in 2013 at 55 on 110% of our working income, and with the market as it has been since then it has only gone up from that point.

I said I'd leave at 52, but I don't think I will. Off topic, but finances aren't the hold up. Good on you, hope you enjoy it.

 

[1stindoor]

My .02 cents. Stop worrying about it and enjoy the truck. Learn the lesson about leasing. We were talked into leasing my wife's Grand Cherokee several years ago because she always has super low mileage and her cars always look like they rolled off the showroom floor. My truck gets driven everywhere in comparison. We were well ahead of the lease due to a sizeable down payment and positive equity in her trade (a Mercedes C300). When we went to trade it in on a new car the leasing company caught us in the fine print. We owed, about $29k. It valued at closer to $36k. We ended up buying out our lease, then traded it. Our first, and last experience with a lease.