QuestionI live in New York State, and in 2003, all the car places stoppped leasing for a year due to a quirk in the law which allowed people to sue leasing companies.
Because of that, I was not able to lease the car I bought (2004 Jeep Grand Cherokee) and had to buy it on a balloon note.
The day is approaching, in about 5 months, when I will either need to buy out the balloon note, or turn the car in.
Currently, the buy-out price is $15,133.56. Kelly Blue Book value is $15,985 (it is in good condition with 21,000 miles, no damage but a couple minor dings from stones in the road, no body work, no accidents, new rear breaks, etc.)
I know that traditionally it is a bad deal to buy out a lease. However, with the balloon note, I had to pay all the sales tax up front. Also, I am going to have to put new tires on it and I just replaced the rear brake pads and rotors.
The question is should I buy it out or not?
It's a good jeep, I like it, it's in great condition. Went to look at new cars and even if I just got another jeep, my payments would go up at least $75-100 per month and I'd have to come up with $2,000-4,000 down. Neither of these options is a good one for me.
I do have the option of using money from home equity loan to buy it out (where the interest would then be tax deductible on a yearly basis).
Any thoughts you might have would be welcomed. Also, as a heads up, I intend to submit this to one or two other experts to get some competing views on my predicament.
Thanks in advance!
Chuck
AnswerHi Chuck,
Thanks for your question.
Personally, I don’t think it’s a bad idea to buy a vehicle that’s on a lease or balloon note, depending on the individual circumstances, of course. (If you want to make a truly expensive financial decision, buy a new car that drops 10-30% in value as soon as you drive it off the lot.) I bought my last BMW at the end of the lease. Loved the car, knew the present owner (me!) took great care of it, and I didn’t want to spend the additional money on a new one that I really didn’t need. And with no down payment, my payoff was less than I would have spent if I traded and re-purchased it from a dealer.
With most of the major purchases we make, we have to consider a number of factors that fit our personal and financial situation at the time. You can crunch numbers all day, and it sounds to me like you’ve already done your homework on this one, but your final decision has to take all of these factors into place.
When I was writing my first book, $ave Thousand$ Buying Your Next Car: Confessions of a Former Car Salesman (www.Make-Me-Smarter.com) I had an entire section written on financing with different instruments, including leases, how to handle lease buyouts, terminations, etc. It got to be more involved than I planned so I decided to pull it out and make it a separate book, which is currently in processes.
I’m not your financial advisor, nor am I trying to give you financial advice, but based on what you told me, it sounds like paying off the balloon and buying the Jeep fits your current circumstance, and what you really want to do.
And when you do, you can thank the current owner for taking such good care of it:>!
Hope this helps you, Chuck.
Regards,
Ron
