Premier Purchase
06-10-2003, 04:55 AM
#1
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Premier Purchase
Any of you guys used this method to lease/purchase your car? I was considering a lease on my next Audi but this looks more appealing on the surface. Any advice or input appreciated...
06-10-2003, 05:30 AM
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Re: Premier Purchase
I used a premier purchase for my new '03. I hardly put out anything out of pocket, less than a lease. The difference in price was less than 20 bucks for premier vs. lease. No complaints for now.
06-10-2003, 05:31 AM
#3
I'm going to do premiere purchase once my car's here.
Premiere Purchase is like a 9 year loan where you turn the car in at the point where its worth as much as you owe on it. You can think of a conventional 5 year loan as a 2.5 year premiere purchase (that's about how long it takes for your car to worth as much as you owe).
I think it has a lot of benefits. Compared to regular purchasing you have a guaranteed trade-in value after 3-4 years (whatever term you chose), which is nice to have in today's unstable market. You don't have to deal with trading in at the end of the term. It gives you options at the end of the term:
- keep it and refinance
- turn it in and walk from it
- trade it in and pocket the tax benefit
- sell it and make some money on the sale.
With premiere purchase (or lease for that matter) unless the lender got the residual dead on, the customer wins. If the car's worth more at the end of the term then you can sell it and pocket the difference between the selling prica and the residual value. If it's worth less than the residual then you paid less for the car than you actually used.
The benefit of Premiere Purchase over lease depends on your state/situation. Some states will stop leasing and do balloon loans exclusively due to the recent vicarious liability suits lenders are getting into. In states like TX where you have to pay sales tax on the entire purchase price of the vehicle even with a lease and not only on the amount that you use, premiere purchase makes a lot of sense. With a lease if you decide to buy the car at the end of the term it'll be treated as a used car purchase and you have to pay sales tax AGAIN. With premiere purchase if you decide to keep it at the end of the term, it's just treated as a refinance and you don't have to pay sales tax twice. Also you don't have to deal with 3rd party buyouts that can get complicated with some lenders since with the premiere purchase you're the person who holds the title to the vehicle, you can sell it to anyone you want to.
So who's Premiere Purchase for? People who drive less than 15K miles a year, keep their car clean and neat, plan to replace their wehicle within 3-4 years, disciplined enough to know that you can't just trade it in after 2 years and walk from it, don't want to put any money down and want to get the benefit of time value of money that they save on monthly payments.
Who's it NOT for? People who drive 20K+ miles a year (be prepared to pay a hefty over mileage penalty, there is no free lunch), plan to keep their cars until the wheels fall off 10 years down the road, have a substantial amount that they can use as down payment, have no high interest debt and don't plan on investing the monthly saving.
For my lifestyle Premiere Purchase makes perfect sense and since I live in a sucky state lease wise, it is better than leasing for me.
I hope that helps to decide if Premiere Purchase is for you or not.
I think it has a lot of benefits. Compared to regular purchasing you have a guaranteed trade-in value after 3-4 years (whatever term you chose), which is nice to have in today's unstable market. You don't have to deal with trading in at the end of the term. It gives you options at the end of the term:
- keep it and refinance
- turn it in and walk from it
- trade it in and pocket the tax benefit
- sell it and make some money on the sale.
With premiere purchase (or lease for that matter) unless the lender got the residual dead on, the customer wins. If the car's worth more at the end of the term then you can sell it and pocket the difference between the selling prica and the residual value. If it's worth less than the residual then you paid less for the car than you actually used.
The benefit of Premiere Purchase over lease depends on your state/situation. Some states will stop leasing and do balloon loans exclusively due to the recent vicarious liability suits lenders are getting into. In states like TX where you have to pay sales tax on the entire purchase price of the vehicle even with a lease and not only on the amount that you use, premiere purchase makes a lot of sense. With a lease if you decide to buy the car at the end of the term it'll be treated as a used car purchase and you have to pay sales tax AGAIN. With premiere purchase if you decide to keep it at the end of the term, it's just treated as a refinance and you don't have to pay sales tax twice. Also you don't have to deal with 3rd party buyouts that can get complicated with some lenders since with the premiere purchase you're the person who holds the title to the vehicle, you can sell it to anyone you want to.
So who's Premiere Purchase for? People who drive less than 15K miles a year, keep their car clean and neat, plan to replace their wehicle within 3-4 years, disciplined enough to know that you can't just trade it in after 2 years and walk from it, don't want to put any money down and want to get the benefit of time value of money that they save on monthly payments.
Who's it NOT for? People who drive 20K+ miles a year (be prepared to pay a hefty over mileage penalty, there is no free lunch), plan to keep their cars until the wheels fall off 10 years down the road, have a substantial amount that they can use as down payment, have no high interest debt and don't plan on investing the monthly saving.
For my lifestyle Premiere Purchase makes perfect sense and since I live in a sucky state lease wise, it is better than leasing for me.
I hope that helps to decide if Premiere Purchase is for you or not.
06-10-2003, 05:34 AM
#4
Another piece of information that I wrote on another site before:
This was in reference to leasing vs. buying but the same principle applies here too.
As VdubDriver already said ALWAYS lease with no money down. (And with current interest rates I'd expand that to purchasing as well) If you have money just stick it in the bank and deduct from it every month as he said. To illustrate this issue better, here is an example (I am using a 48 month balloon loan to figure numbers, actual lease numbers would a be worse actually):
Let's say you buy a car for $25,000 and you either put nothing down and lease for 48 months for $323/month or you put $5000 down and lease for 48 months for $211/month.
The difference between the two monthly payments is $112 which seems like a lot. Multiply that by 48 months (number of payments) that is $5376. So you will end up paying $376 more over the term of the lease by not putting anything down and keeping your $5000 in your pocket. I am not going into details that you can actually earn interest on that $5000 and keep taking $112 out of it every month making the $376 difference even less, or that you could have used the $5000 to pay off a higher interest debt with it.
So if nothing goes wrong with your car during the term of the lease you will be out of $376 more by going this route. that is about $8/month (not counting other interest earning possibilities on your $5000).
Now let's look at the other scenario when your car gets totaled or stolen after a year. After 1 year that car will worth about $20,000 due to depreciation. If you paid no money down, after the first year your payoff would be about $22100. If you put no money down up front then you insurance will pick up the gap (GAP insurance) between what the car is worth ($20,000) and what you owe ($22,100). So the gap insurance will pay $2100 while the rest will be paid by the regular car insurance. You walk away clear and free and with $3656 left of the $5000 that you put aside (you made 12 payments of $112 from it towards the car)
However if you put down $5000 up fron on this car as a cap reduction by the end of the first year your payoff would be about $18,200. Since the car is worth $20,000 at this point and you owe $18,200 the insurance would pay the lender $18,200 and give you $1800. So you would end up with no car and $1800 in your pocket.
So if you compare the two numbers you can see that if your car is stolen or totaled after 1 year you would be losing over $1850 just because you put money down up front. This number would get smaller as the years go by, but you will be pretty much uspide down throughout the entire lease.
The other thing I would want to point out with leases is that in some states (Texas included) they asses sales tax on the ENTIRE purchase price of the vehicle even if you only lease it. And to top it off if you decide to purchase the vehicle at the end of the lease term they will asses sales tax on the residual value and you would have to pay that sales tax again during the financing of the used vehicle. Add to it the lease origination fee, safety deposit and other fees and it turns out that lease is not really the best option in these states. If you still want lower payments you might want to consider the premiere purchase (balloon payment) option in which they still calculate residuals, but you pay it as a loan with regular interest rates, and you have a huge residual balloon payment as the last paymet. At that point you can turn the car back in for a disposition fee (about $250) you can refinance the remainder of the loan, you can sell the car yourself and pay off the loan with the cash or you can trade it in on a new car and get the tax credit (in Texas if you trade in a vehicle during a new purchase you only pay tax on the difference between the two). So I think balloon payment loans make a lot more sense than leases, it gives you the same flexibility and some more!
My last advice is relating to mileage. If you know that you'll drive your car a lot, buy miles up front, they are a lot cheaper up front than at the end of the term. Also if you drive a LOT of miles lease is not your best option probably. If you leased your vehicle thinking that you'd only drive it about 12K miles a year but your driving habits changed (because of job, etc.) then be prepared to pay the mileage overage at the end of the lease. If you set out a 1000 mile/month plan but you actually drive 1500 miles a month, put the money that is needed to pay the extra miles into a savings account at the end of each month so you would be prepared to pay the $2000-$3000 in overage miles at the end of the lease. There is no such thing as a free lunch, so don't expect to get away with the excess miles (however if you turn in the lease at the end of the term and lease a new one from the same brand, chances are you can negotiate the excess mileage down).
As VdubDriver already said ALWAYS lease with no money down. (And with current interest rates I'd expand that to purchasing as well) If you have money just stick it in the bank and deduct from it every month as he said. To illustrate this issue better, here is an example (I am using a 48 month balloon loan to figure numbers, actual lease numbers would a be worse actually):
Let's say you buy a car for $25,000 and you either put nothing down and lease for 48 months for $323/month or you put $5000 down and lease for 48 months for $211/month.
The difference between the two monthly payments is $112 which seems like a lot. Multiply that by 48 months (number of payments) that is $5376. So you will end up paying $376 more over the term of the lease by not putting anything down and keeping your $5000 in your pocket. I am not going into details that you can actually earn interest on that $5000 and keep taking $112 out of it every month making the $376 difference even less, or that you could have used the $5000 to pay off a higher interest debt with it.
So if nothing goes wrong with your car during the term of the lease you will be out of $376 more by going this route. that is about $8/month (not counting other interest earning possibilities on your $5000).
Now let's look at the other scenario when your car gets totaled or stolen after a year. After 1 year that car will worth about $20,000 due to depreciation. If you paid no money down, after the first year your payoff would be about $22100. If you put no money down up front then you insurance will pick up the gap (GAP insurance) between what the car is worth ($20,000) and what you owe ($22,100). So the gap insurance will pay $2100 while the rest will be paid by the regular car insurance. You walk away clear and free and with $3656 left of the $5000 that you put aside (you made 12 payments of $112 from it towards the car)
However if you put down $5000 up fron on this car as a cap reduction by the end of the first year your payoff would be about $18,200. Since the car is worth $20,000 at this point and you owe $18,200 the insurance would pay the lender $18,200 and give you $1800. So you would end up with no car and $1800 in your pocket.
So if you compare the two numbers you can see that if your car is stolen or totaled after 1 year you would be losing over $1850 just because you put money down up front. This number would get smaller as the years go by, but you will be pretty much uspide down throughout the entire lease.
The other thing I would want to point out with leases is that in some states (Texas included) they asses sales tax on the ENTIRE purchase price of the vehicle even if you only lease it. And to top it off if you decide to purchase the vehicle at the end of the lease term they will asses sales tax on the residual value and you would have to pay that sales tax again during the financing of the used vehicle. Add to it the lease origination fee, safety deposit and other fees and it turns out that lease is not really the best option in these states. If you still want lower payments you might want to consider the premiere purchase (balloon payment) option in which they still calculate residuals, but you pay it as a loan with regular interest rates, and you have a huge residual balloon payment as the last paymet. At that point you can turn the car back in for a disposition fee (about $250) you can refinance the remainder of the loan, you can sell the car yourself and pay off the loan with the cash or you can trade it in on a new car and get the tax credit (in Texas if you trade in a vehicle during a new purchase you only pay tax on the difference between the two). So I think balloon payment loans make a lot more sense than leases, it gives you the same flexibility and some more!
My last advice is relating to mileage. If you know that you'll drive your car a lot, buy miles up front, they are a lot cheaper up front than at the end of the term. Also if you drive a LOT of miles lease is not your best option probably. If you leased your vehicle thinking that you'd only drive it about 12K miles a year but your driving habits changed (because of job, etc.) then be prepared to pay the mileage overage at the end of the lease. If you set out a 1000 mile/month plan but you actually drive 1500 miles a month, put the money that is needed to pay the extra miles into a savings account at the end of each month so you would be prepared to pay the $2000-$3000 in overage miles at the end of the lease. There is no such thing as a free lunch, so don't expect to get away with the excess miles (however if you turn in the lease at the end of the term and lease a new one from the same brand, chances are you can negotiate the excess mileage down).
06-10-2003, 06:48 AM
#6
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can someone shed some light on my lease deal...
I'm a little confused? What is a rent charge, same as interest paid if one were to buy out the lease?
I picked up a 02 1.8 last year for 29. put 2 down, paid tax upfront 1100 (confused about this as well). after cap reduc. 27000. Total payments after 39 mon. is 13900, buyout is 17000, Is this about normal? Is losing around 4K in a lease buyout okay? If I buy it out what value do they base the tax on?
I picked up a 02 1.8 last year for 29. put 2 down, paid tax upfront 1100 (confused about this as well). after cap reduc. 27000. Total payments after 39 mon. is 13900, buyout is 17000, Is this about normal? Is losing around 4K in a lease buyout okay? If I buy it out what value do they base the tax on?
06-10-2003, 07:09 AM
#7
some light.....
- Your sales price was $29K.
- Your residual seems like it was 56% (I assumed MSRP of $30K) which is $17K.
- You will be making 39 payments of $356 for the lease for a total of $13.9K.
The total sales tax is the sales tax on the difference between the sales price and the residual value, you have paid it up front, $1100, sounds about right (you seem like you're in a state where they only tax the usage of the vehicle)
From the above figures your money factor seems like it was 0.0023 which is about 5.5%, sounds about right.
As far as I can tell your deal was fair as long as you are happy with the sales price of $29K, they didn't sneak anything by you. Sometimes they tell you one thing then they charge you another by the time the deal is done, yours doesn't seem to be that case luckily.
Rent charge is just another word for interest, it's the lease lingo that you need to get down to understand.
I hope this helps....
- Your residual seems like it was 56% (I assumed MSRP of $30K) which is $17K.
- You will be making 39 payments of $356 for the lease for a total of $13.9K.
The total sales tax is the sales tax on the difference between the sales price and the residual value, you have paid it up front, $1100, sounds about right (you seem like you're in a state where they only tax the usage of the vehicle)
From the above figures your money factor seems like it was 0.0023 which is about 5.5%, sounds about right.
As far as I can tell your deal was fair as long as you are happy with the sales price of $29K, they didn't sneak anything by you. Sometimes they tell you one thing then they charge you another by the time the deal is done, yours doesn't seem to be that case luckily.
Rent charge is just another word for interest, it's the lease lingo that you need to get down to understand.
I hope this helps....
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06-10-2003, 08:06 AM
#9
Answer
Money factor is the term used to describe interest on a lease. to convert interest rate to money factor you have to divide the interest rate by 2400. So you money factor was 0.0023 which corresponds to a 5.5% interest rate on a conventional loan. I posted the 5.5% to put it in perspective as a lot of people understand 5.5% but not a lot get what you're reffering to when you say 0.0023.
I hope that makes sense.
I hope that makes sense.
06-10-2003, 09:29 AM
#10
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sorry to keep hounding you...if my money factor is...
.0023 or 5.5% is it 5.5 per year or of the total sale price? It all makes sense in theory but I can't figure our how I get 4k in interest? at the buyout.
Thank you very much for you feedback, I am bad at this stuff.
Thank you very much for you feedback, I am bad at this stuff.