Questionthank you ron, it was very helpful...
here are the pertinent info that you needed:
LEASE 60 months / $750.89 per month
(they said they will going to pay for the first month, so i just have to shoulder the remaining 59 months)
Amount I will pay by the end of the lease: $ 45,406.15
residual value after 5 yrs/60,000 miles: $10,697
what they're giving me for my trade: $10,000
blue book value of my eclipse: $10,000
amount I still owe from eclipse: $16,000
2007 toyota hybrid msrp: $32,490
total cost(plus handling, processing, delivery & carpet cargo mat set: $ 33,294
this is the "extras" that i'm getting for leasing a 2007 toyota hybrid for $750.89/month for 60 months:
1. toyota extra care, platinum
- valued at $1,595...basically covers every parts and electronics parts of the car for 5yrs/80,000 miles, instead of only 3 years with a lesser miles.
2. they activated the full anti-theft alarm
-valued at $400...i don't even know what this means...i thought all cars come equipped with anti-theft.
3. GAP insurance
4. Navigatinal system
-priced at $3,250
5. zero down payment
please help me, i hope i have given you all the info that you needed...i really want to know if this is a good deal or not. i just want to get rid of my eclipse without the hassle of selling it by my self.
p.s. this is my first time using your website and it is very helpful and the response is very quick...i'm serving the military and i wonder if people now about your website...i think every active duty personnel should know about this website, since we are almost always the target of opportunistic car dealers...i will forward your website to evrybody i know, even my superiors so they can spread the word.
thank you and god bless.
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The text above is a follow-up to ...
-----Question-----
i'm trying to buy a an suv but i'm too upside-down from my current car. it's a 2003 mitsubishi eclipse gts, which i still owe 16k (in which the dealership says that the car's now value is only around 10k). i'm being offered by a toyota dealership here in CA with a 2007 toyota highlander hybrid (not the limited edition, though i have convinced them to put a navigational system for free). i have also convinced them on a zero money down (i told them a have no money to put down)and they are offering it for $695 on a lease for 60 months on a 12,000 miles/year allowance. is this a good deal? please help!!! god bless.
-----Answer-----
Morning Lawrence,
Thanks for your question. First I have to tell you that, when I began writing my first book, $ave Thousand$ Buying Your Next Car: Confessions of a Former Car Salesman (www.Make-Me-Smarter.com), I had a section specifically for leasing. Unbelievably, few buyers really know why a lease if different that a purchase; even fewer have the ability to compare leave v. buy. Eventually I took it out, opting to devote an entire book to the subject because of its importance and impact.
Lawrence, I am unable to calculate the lease cost for you for a number of reasons: I don’t know the residual value of the Highlander; don’t know what you’re being asked to pay for it (what the payment is based on); what their giving you for your trade; and especially the lease rate factor (the lease equivalent of your interest rate.) These are all critical to making the payment calculation. But, based on my experiences, and seeing dealers work, here are a few impressions I will make on what you’ve told me.
1. Financially, it is a very bad decision to trade a vehicle that you’re upside down on. I don’t know all of the circumstances, but in general, if you’re looking for the best deal—don’t get rid of your Mitsubishi. I do devote an entire section on the financial impact of being upside down on a loan: basically you end up paying (in your case) $6,000 (plus interest) over 60 months for something that you don’t own anymore! And this is over and above the lease price of the vehicle.
2. Trust me when I tell you that the dealer is not giving you a navigational system that has an invoice price of $2,062.50 for free. Buyers love to tell me how they ‘forced’ a dealer into giving them thousands of dollar of options, all thrown in for free. As long as their happy thinking that, good for them. But in reality buyers typically pay for anything free in many other ways, and usually many times over. This is a favorite dealer’s trick. A common practice was, and still is with some dealerships, to load as much as possible into the monthly payment they get you to agree to, and then offer to give you options or extras ‘for free’ that you’re already paying for. They get more money, and you think you’ve just landed the deal of a lifetime. I don’t think so . . .
3. It’s the same thing with $0 down. Leasing companies almost always require at least the first month’s payment at signing, and maybe two depending on a buyer’s credit. There may be a special offer available, but my guess is that they’re just taking your down payment (first payment) out of money they’re getting from you in another way. These people are masters at manipulating deals, so much that it’s very difficult to follow what they’re doing for, or to you.
Here’s what I’d recommend.
- If you do need to get rid of your Eclipse, find out what it’s worth and consider selling it yourself. Regardless of what a dealer tells you they’re giving you for it, you’ll almost always get more if you sell it yourself. When they offer you a lot for your used car, their adding it into the deal someplace else.
- Ask the dealership for their bottom line price for the vehicle alone, and with your trade-in. Look at the price their charging you without adding the confusion of leasing. My guess is that they won’t want to do this, or will tell you that by leasing you’ll get a better deal and the price of the vehicle is fixed. Wrong!
- Once you have their prices, call your bank or credit union and ask them to quote a lease for you. Taking out a loan, or lease, from a bank, credit union, etc. is different that dealing with a car dealer. Banks, for example, calculate your payment based on your loan amount; car dealers calculate your loan amount based on the amount of money they can get you to commit to—your monthly payment. The difference can be many thousands of dollars more cost to you, and profit to the dealer. Ouch!
I hope this helps you with your analysis and final decision, Lawrence.
Good luck, and Happy Holidays!
Regards,
Ron
AnswerHi Lawrence,
Please accept my apologies for the brief delay in responding to your follow up message. I’m a Sr. Exec. Management Consultant in my day job, and it sometimes gets in the way of my volunteer work.
Thanks for your endorsement of this site; I also think it is an excellent resource for a number of different areas and issues. Please note however, that as much as I would like it to be, it is not mine. I am a volunteer, offering my assistance and expertise to, and hopefully helping people with their vehicle purchases. My actual website is www.Make-Me-Smarter.com, which I hope you will have a chance to visit.
Also, thanks for the additional detail on the vehicle we’ve been discussing. I think I may have mislead you in my initial response, Lawrence. While I did say that I couldn’t calculate the lease numbers because I didn’t have all of the information, what I meant was that even with this information I do not have the tools available to calculate a lease. Loans are simple and easy to calculate; leases are not.
But, leasing and the first payment their making for you aside (they’re not really making it for you anyhow, they just tell you they are and you end up paying for it), and with experience working with dealerships, here’s how I recommend calculating what to pay for a vehicle:
1. Know the MSRP and invoice prices for the vehicle, and all options that are included. I use www.kbb.com, but there are many others you can use for this.
2. Working from the invoice price,
a. Subtract any rebates or other incentives offered on the vehicle.
b. Add the invoice price of the included options you want.
c. For the other options you can research them to find out what they really cost. Did you know that GAP insurance is included in a lease even though they’re telling you they’re giving to you for free? And your $1,595 platinum service plan can be purchased from 3rd parties for maybe half of what they’re telling you it’s worth? And that the $3,250 navigation system has, as I mentioned last time, an invoice price of about $2,062 and retail of around $2,500? So far do you think they’re giving you a good deal? I don’t.
3. Now go on a website and find the approximate wholesale value of your 2003 Mitsubishi and compare it to the $10,000 they’re offering. Any difference in these amounts is how much more they’re trying to make on the deal from you.
4. Now, add it up. Invoice price – rebates and incentives, and then add a reasonable profit for the dealership of 3-4%, 5% if you want to be gracious. Then, and only then, add the invoice price of options + the remaining amount of money on your Eclipse. In other words, the dealers profit is on the vehicle, not the options, and not extra amount added to the loan from your Eclipse.
Guess what, they’re not going to like this. Oh well, this is the way to do it, and the way to save a lot of money on what you’re buying. So it’s a matter of telling them take it or leave it. If they say no, you simply ask for directions to the next dealership where you will try and buy from them. I bet they won’t let you leave. There are many, many dealers and (the same) vehicles out there. Don’t jump on anyone of them: make a smart buying decision.
Now, one more thing. Above I said ‘leasing aside’. Never confuse the issue by letting them work a lease or loan payment without settling on the total price of the vehicle first. They’ll get you every time if you do. Now you have them work the lease payment for you based on the total price of the vehicle that you just calculated. Any guesses that the numbers will be different? Better yet, take the same information to your bank and let them calculate the lease so you can see an unbiased numbers.
Lawrence, I can’t tell you exactly if this is a good deal or not; you have to know the numbers as I told you above. Also, what you consider a good deal is not the same for everyone; it depends on how much you want and/or need the new vehicle, your financial situation, etc. But, my gut feel is that if you buy with the numbers they gave you, they’re going to close the dealership early for Christmas and celebrate because of all of the money they’re going to make.
I spent five years in the Navy during the wonderful Viet Nam era. It’s indeed unfortunate that members of our countries Armed Forces are frequently seen as targets of opportunity for making extra money on deals, especially car deals. If anything the military family should be given some reasonable consideration because of what they represent, stand for, and defend with their lives.
I know I’m giving you more work to do, but trust me, it’s either do some work on your own and know exactly what’s going on and what they’re trying to do to you, or pay for it every single month for the next five years.
If you don’t mind, I would really like to hear what you end up doing and how it works for you, Lawrence.
Regards,
Ron
