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The CarMax alternative for ending a leaseJan 18 '03 (Updated Jan 21 '03) Write an essay on this topic.
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The Bottom Line End your lease the smart way--compare the CarMax appraisal to the pre-tax payoff!
As you probably know by now, a lease is a binding contract, and usually there is no way to end it early without paying the full amount you owe. There is, however, a pretty fair deal available to people who live in a town that has a CarMax. I wish there was a way to make this little secret known to everyone who leases. There are companies out there that act as middlemen for people who are trapped in a lease and want to hand it over to someone else. These companies charge big money to list peoples' cars, and it looks like they pressure leaseholders to offer cash to people willing to assume the lease. It's a scam, and there is a better way--just read on. If you are in a lease and are suddenly losing sleep over the huge financial disadvantage it represents (i.e., every lease written so far), you have few alternatives besides the middleman leasetraders: 1) Go to a new car dealer and hope to "sweet-talk" them into buying you out of your current lease so you can do them the favor of buying one of their new cars. Unless there is an advertised promotion where the manufacturer will end your lease early, be extremely wary of this technique. My experience with this is that the dealer will find a way to "bury" the costs of the old lease in the new one, leaving you to effectively pay for two cars while driving one. Remember, leases are very complex documents, and dealers are very skilled at tricking buyers into accepting unfavorable leases. I have had "buyer's remorse" about three unfavorable leases so far, and my personal best solution is not to lease anymore. But assuming you are already in a lease and want to escape the trap... 2) Get CarMax to buy you out of the lease. Call your finance company and ask for the "payoff amount." Ask whether that includes sales tax or not. If YOU buy the car from the finance company, they will charge you sales tax. If A DEALER buys your car from the finance company, there is no sales tax (I would assume this applies to all states, but you should check the rules in your state BEFORE implementing this epinion). The sales tax issue is very important, and can mean the difference between a favorable and unfavorable lease termination. Write these numbers down. Now compare your costs of keeping the lease through the full term of the lease. Multiply the total number of remaining payments by the monthly payment amount. Add the residual value and any "purchase fee" you're charged if you buy the car. Figure out how much you would save if you bought the car outright right now versus keeping the lease. Often, the savings is substantial. If you like the car, and don't mind owning a depreciating asset, stop right there and scrape together the cash to buy that clunker! 2a) OK, you're saying, "Mike, if I wanted to own an overpriced late-model car, I wouldn't have leased in the first place!" All right, so drive over to CarMax, if they have one in your town. Tell the guy at the door that you want to sell them the car, and you want an appraisal. Don't mention the lease (they honestly don't care WHO they buy the car from). They will put a "hat" on your car, and a guy from the appraisal department will appraise your car. While that's happening, they will attempt to sell you a CarMax car in those dingy offices they have (would it kill them to have nicer facilities or salespeople that knew anything about cars?). You should probably have done your research on whether they have any nice cars on the lot before you go to CarMax, so when the salesman pulls up a list of cars on the same website you checked at home, you can tell him what's bad about every car on the list. They will then come back with probably a pretty decent price to buy your car. It's good for seven days, so take it home and compare it to your "payoff price." Remember, CarMax is gonna buy the car, not you, so there's no sales tax. In many cases, you can actually make a profit from this deal if your car is in good shape and in demand. Good luck getting out of that 8 year Yugo lease! You stand to profit from ending your lease early if the CarMax appraisal is higher than the payoff price without the sales tax. In my case, my 2000 Honda Civic payoff was 11,320 (tax was $680, but waived because CarMax bought the car from Honda), and CarMax offered 11,300. I paid them 20 bucks, and I was out of my lease. Whole transaction took 30 minutes. No ads in the paper, weird people kicking the tires. Just signed a few forms, had to remind the lady at the counter about the sales tax thing (this is very important--I'm sure they screw people out of that sales tax all the time), and I was good to go. And next time, buy the car of your dreams and drive it until it dies!  |
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