HELP!! Should I end my lease early?

[RCtennis3811]

Hey guys,

I have a 2006 MAZDA3s GT fully-loaded hatch that my mom got for me as an early 17th birthday in April 2006. It is currently a lease with Mazda Credit 12,000 miles/year for 3 years. As of RIGHT NOW, I have only 6,000 miles left for the whole year (remember, my lease expires April 2009.) Now I do not want to keep this car as my car for the rest of college because both my mom and I want my next car to have stability control after witnessing its usefulness in both her 2004 Acura MDX and 2008 Infiniti G35. So here's my dilemma: Can I do an early lease termination, and if so how and should I do it?

-I've gone to a couple of dealerships (including another Mazda dealership where I did not get this 3 from) and they have all said that they can assist me in my early lease termination. Is this true? The Mazda dealership where I got the 3 from said that I had to return the car to THEM and nobody else.

-I was told that by doing an early lease return somewhere this summer would put me in negative equity. Can somebody else elaborate? How do I calculate how much negative equity would have to be rolled into a new car?

-On Mazda Credit's website, they talk about lease-end procedure and how I can purchase the car outright at the end. Does that mean that whatever the agreed-upon price of the vehicle when we signed the lease can be split up into monthly payments as they are now?

-Is it true that at the end of my lease that if I just leave the car with them and not pick up a new car that I have to pay?

PLEASE HELP GUYS!! I'm really confused as to what to do with my situation. Any advice is appreciated!!

 

[JDM Sam]

Read your contract

 

[RXMmazdaspeed]

Read your contract

+1


it is my understanding if turning in early you will take a hit on the car (negative balance) that can be rolled into a new car. this will up your payments on the new car you get though. please correct me if i'm wrong.

 

[BlackCherry06]

3 Options:

Trade it on another new Mazda now and they'll usually forgive the early-out penalties and help you out with the negative equity situation you're in. (the money still owed on the current lease)

Trade it in on another brand, where the dealership actually buys the car from Mazda, pays you fair market value and applies that to the new car, minus what they paid for the car (I did this when I got rid of my leased 2002 Altima to get a 2004 3i). Just a warning....if you owe more than fair market value, they're gonna add that to the price of the car you're buying. I got lucky..it came out even.

Keep it until lease end, and when it's time to turn it in, buy or lease another Mazda. When you stay with a brand, they usually forgive your mileage overage, waive the turn-in fees, if any (read your contract for confirmation of this part).

 

[astraelraen]

Mazda3 grand touring has traction control and stability control?

I thought only the sport model Mazda3 didn't have them?

 

[AWmustang]

Mazda3 grand touring has traction control and stability control?

I thought only the sport model Mazda3 didn't have them?

According to edmunds.com, Stability Control was not offered till 2007.

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RCtennis3811 -- Stability control is a very very useful safety feature. I will never again purchase/lease a car without it if I can help it.

If you call Mazda credit they will tell you how much you would owe to get out of the lease early.

I just did this on my 07 CX-7. To get rid of the car I'd have to pay Mazda credit 26,000. Kelly Blue Book says, best case scenario, it's only worth 21,000. So unless you put a lot of money down at the beginning of the lease, chances are you will owe more than you will get for the car.

Take my case for example. I wanted to go to the Mazda3. So I buy the 20,000 Mazda 3, but my payments are based on 25,000 because I still owe 5,000 on the CX-7. (The 5,000 is the negative equity.)

If the situation were reversed, where I owed 21,000 and it was worth 26,000 then I would have positive equity, and they would take the 5,000 off the price of my new car.

 

[Raymo853]

Your situation is perfect evidence that leasing is so very bad unless your business is paying for it.

Basically to be terse and honest, you are going to get financially screwed whatever you do. If you end it early, you will pay all sorts of fees and penalties. If you don't end it early and go over the mileage limit, you are going to pay all sorts of fees and penalties. Stability and traction control are great saftey features, however, they still do not make up for driving like a jackball so much that it is worth possibly $x,xxx of dollars to get it a little early.

Don't be so worried about your credit rating either way. It is good for your credit rating to incur fees and penalties because banks love that since it is nearly free money to them. They love people that do not plan and end up paying them loads of cash.

 

[AWmustang]

Leasing is not bad if you stay under your miles. And ending a lease early is not really any worse financially than trading in a financed car after 2-3 years.

However, in this example, you are correct, there isn't much to be done to avoid fees or negative equity.

 

[Raymo853]

not really any worse financially than trading in a financed car after 2-3 years.

Nobody should every do anything that stupid unless something really changes in their life that forces it.

 

[muchdutch]

According to edmunds.com, Stability Control was not offered till 2007.

When I checked it out, it said both dsc and traction are unavailable.

 

[AWmustang]

When I checked it out, it said both dsc and traction are unavailable.

Right.... he has an 06, DSC and TCS were first available on the 07.

 

[ehidle]

Leasing is so very very bad unless you are a corporation... Leasing never used to be an option for individuals, but when car manufacturers realized just how poorly the average person understood how leases worked and how to use them, they discovered how much money they could stick people for.

Leasing was originally created because IRS rules for corporations made leasing much easier to account for. Basically, a corporation can deduct 100% of lease costs, but has to account for and depreciate owned vehicles over time. It's much easier to just lease since the money saved on accountants outweighs the higher cost of leasing.

Car manufacturers started leasing to individuals when they discovered that people would use it in effect to buy more car than they could afford, and often would also incur lots of penalties and fees along the way. They also discovered that they could mandate dealer service which would generate more money.

In general, people have no idea how to negotiate a lease, either. There are several terms to a lease that make up the final monthly amount.

First is the agreed upon value of the leased property. Most people just ignore this and the dealer puts the sticker price in the box. But, you can negotiate this. Negotiating a lower initial value with decrease the amount of depreciation over the life of the lease contract and lower that portion of the payment.

Second is the capitalized cost reduction, which is essentially you pre-paying some of the projected depreciation of the car. If you know for certain that you are going to buy the car at the end of the lease, it is okay to give the dealer a cap cost reduction as long as you know what you are doing. If you think you are going to turn it in, do NOT offer a cap cost reduction payment. I will explain why below.

Third, the value of the property at the end of the lease. This determines how much you have to pay in depreciation each month. The dealers often play with this number to change the monthly payment. They can make this number really high to reduce your payment, but then you have a much higher chance of having a large balloon payment at the end of the lease, in excess of the value of the car. This is NOT a position you want to be in because then you more or less MUST turn in the car, and that opens the flood gates for the "scratch and dent" fees. A lower end-of-lease value will result in you being in a good position to buy the car at the end of the lease or trade it in on another brand if the car is worth more than the "keep it" payment.

Fourth, the monthly rent. This is "free money" for the dealer, and like everything else, is negotiable. Again, they will play with this number to change your monthly payment.

So, here's the big caveat I mentioned before about cap cost reduction. Often, people just shop on monthly payment. In a lease, the dealer can in effect make the monthly payment whatever they want. They could even write you a zero-rent lease and you just pay the projected depreciation (fat chance of that unless you're a big corporation).

If you give the dealer a big cap cost reduction payment, the amount of depreciation in your lease will be lower, but they will probably try to take some of that back by increasing the rent, or increasing the end value (or worse, both!). In effect, if you gave the dealer a big enough cap cost reduction payment, they could screw you double by making the initial and end values the same, and your payment would be 100% rent! You have to be very careful.

Since most people who are shopping for leases shop only on their monthly payment (because they can't afford the car anyway), it is very easy to get screwed because the dealer will hide the real cost of the lease from you wherever possible.

Let's take an example, the 2008 3i Touring I bought a couple of weeks ago.

If I were going to lease the car, and I had $250/mo to play with at most, but I also have $3k in cash in my pocket. The sticker price was about $18,500, and let's say that I go for a 3 year lease. So, a 3 year old car with, say, 36k miles on it might be worth anywhere between 35 and 65% of the original value. This is a mazda, so let's go 40%.

The sales jock fiddles some numbers, and the depreciation on the car at a 40% end value is 11,100 over 3 years, or $308/month. Well, that's already more than I can afford, so the dealer has to start playing games with me. So, let's see what we can do for you, Mr Hidle. You can't afford this car, but I'll just do you a HUGE favor. Let me go talk to my sales manager.

He goes in the back, grabs a cup of coffee, and talks with some of the other sales jocks about last night's Lakers game. He comes back, sits down with his calculator, and figures some numbers. He punches in a 60% end value instead, reducing the depreciation to $7400, or $205 per month, then works in a monthly rent payment of $45, making your payment $250.

"He wasn't happy, Mr. Hidle, but we can write you this lease for $250, but we're going to need a cap cost reduction down payment of $3000 to do it."

"Great! I have that!"

So, he scribbles down some more numbers, takes your $3000, reduces the initial value to $15,500, making the monthly depreciation just $122. He then increases the rent to $128 to keep the payment at $250. He leaves the end-value alone at $11,100.

So, you have paid your $3000, you are paying $128/mo on rent, and after three years, you are going to either have to turn the car in, or pay $11,100 for a car that is likely worth about $7500, going another $3600 in the hole.

edit: BTW, what the sales jock didn't tell you is that he's only talking to you about the lease payment, not the other bills you are going to get, such as sales tax. In Pennsylvania, there is a 6% sales tax and a 3% car rental tax appended to your payment, and our nice sales jock didn't bother to mention that. It's not his problem anyway! So, your first bill comes in the mail, and lo and behold, it's $275 instead of $250! Ouch!

If you had purchased the car, negotiating the invoice price of about $17,200, putting your $3000 down (about $1000 against taxes), you'd finance about $15000 over 5 years at the promotional 4%, for a monthly payment of, get this, $275, and you would OWN it when it was all said and done. edit: (no, I didn't cook the numbers to make the payment come out the same. It actually just happened that way!)

Is this not clear to anyone? I should give seminars on this... hehe..

 

[AWmustang]

But if you want a new car every 2-3 years then leasing does make sense. The only way leasing makes sense is if you are going to turn it in at the end. If you want to keep it then you should have bought it in the first place.

As it is with all business transactions, buyer beware. If you don't understand every number on the contract, then you should find out before signing. This goes for leases or loans.

When you lease a car you are only paying for the portion of the car that you use.

And I don't know what kind of screwy dealer you went to but I don't have to take my car to the dealer for maintenance. I just have to keep maintenance records.

 

[ehidle]

But if you want a new car every 2-3 years then leasing does make sense. The only way leasing makes sense is if you are going to turn it in at the end. If you want to keep it then you should have bought it in the first place.

When you lease a car you are only paying for the portion of the car that you use.

I disagree. You are paying for the portion of the car that you use (depreciation) and for rent on top of it (free money for dealer), plus whatever "scratch and dent" fees they feel like charging you.

As it is with all business transactions, buyer beware. If you don't understand every number on the contract, then you should find out before signing. This goes for leases or loans.

+1

And I don't know what kind of screwy dealer you went to but I don't have to take my car to the dealer for maintenance. I just have to keep maintenance records.

BMW is a good example. They include a lot of scheduled maintenance in the price of the car, now. While you're still welcome to have it serviced elsewhere, you've already paid for the dealer service whether you use it or not.

 

[AWmustang]

I disagree. You are paying for the portion of the car that you use (depreciation) and for rent on top of it (free money for dealer), plus whatever "scratch and dent" fees they feel like charging you.

While I have not turned the car in, I'm not really worried about scratch and dent fees. We'll just have to wait and see on that.

As for the rent... that's just like interest charges in my mind. Money that doesn't go to towards the car but is a necessary evil.

When I leased mine I sat down and calculated everything and the rental charges were the same as if i'd been charged 2.9% apr loan interest.

Pretty darn good deal really.

 

[ehidle]

While I have not turned the car in, I'm not really worried about scratch and dent fees. We'll just have to wait and see on that.

As for the rent... that's just like interest charges in my mind. Money that doesn't go to towards the car but is a necessary evil.

When I leased mine I sat down and calculated everything and the rental charges were the same as if i'd been charged 2.9% apr loan interest.

Pretty darn good deal really.

I don't consider interest charges a cost because I am either a cash buyer, or when there is a cut-rate interest offer, I put the cash into an investment account that returns more than the cost of borrowing. It is very trivial to get tax-advantaged returns greater than the 2% Mazda gave me on this car.

I can't lease a car with someone else's money, so there's another strike against it for me

I dunno, I can almost always think of a number of reasons why buying is better than leasing, but maybe I should just qualify that with a "for me" at the end. None of this, however, changes my original statement that it is much easier to get screwed by a lease than by a purchase, especially because there are simply so many different angles in a lease.

Tally ho!

 

[crashkelly]

I don't consider interest charges a cost because I am either a cash buyer, or when there is a cut-rate interest offer, I put the cash into an investment account that returns more than the cost of borrowing. It is very trivial to get tax-advantaged returns greater than the 2% Mazda gave me on this car.

I can't lease a car with someone else's money, so there's another strike against it for me

I dunno, I can almost always think of a number of reasons why buying is better than leasing, but maybe I should just qualify that with a "for me" at the end. None of this, however, changes my original statement that it is much easier to get screwed by a lease than by a purchase, especially because there are simply so many different angles in a lease.

Tally ho!

I have totaly agreed with what this man has said...and as a poor young soul I was raped by lease and now I have vowed never to lease again. Sure if you dont go over mileage you think that you are saving money, but you're really just renting which number one doesnt gain you any asset at the end of payment and two..who in their life has ever stayed under the ridiculous 12-15000 mile a year lease agreement....I rolled 4,000 dollars in overmileage fees into my MSP (Which I am financing so that I can own it when I am done paying thousands and thousands of dollars). I am sure there are people out there that can do it, but everyone I know who has leased, has always said they will never lease again and most of them tell me the same ol' story "yeah I am driving my brother or girlfriends car because I already have too much mileage on my lease.

Leases for regular individuals are just always a bad idea in my book...The chances that you will actually stick to the lease agreement (especially the longer ones) are just not good IMO. Also in reference to AWMustang's comments about ding and dent charges...dealerships usually allow up to a certain amount of wear and tear on their car's lease. For example the civic I had leased had a decent amount of wear on it, but I was covered by contract because I was allowed up to 1,500 dollars worth of wear and tear type damage.

 

[ehidle]

Sure if you dont go over mileage you think that you are saving money, but you're really just renting which number one doesnt gain you any asset at the end of payment and two..who in their life has ever stayed under the ridiculous 12-15000 mile a year lease agreement....I rolled 4,000 dollars in overmileage fees into my MSP (Which I am financing so that I can own it when I am done paying thousands and thousands of dollars).

Can you clarify something for me? Did you pay for overmileage at the end of your lease, or at some point during? What is an MSP? (yes, I'm new to Mazda ownership, so I am ignorant to some of the acronyms that are used)

If you intend to buy the car at the end of your lease, you do NOT have to pay for excess mileage. The final value of the car is defined in the lease, and the mileage becomes irrelevant at the end because any mileage charges are owed to whomever takes ownership of the car after the lease is over (it is excess depreciation, which is applied to the final value).

For example, let's say the final value defined in your lease is $10,000. At the end of the lease, there are 2000 extra miles in excess of the lease allowance on the car, resulting in a $1000 mileage charge. That mileage charge is used to reset the final value to $9000. So, if you are buying the car, you may pay a $1000 mileage charge, but then you only have to pay the new $9000 final value of the car.

So, if you are buying the car at the end, you are paying yourself for the mileage, so they just skip that whole step since it becomes irrelevant anyway.

edit: BTW, I am in Lansdale, not too far from you!

 

[C.A.T.A.P]

I ended mind early by trading in my CX-7 for my speed. THats the best way to do it is by trading it in.

 

[LilZoom]

The only way you can lease and end up making out okay is if you end up wanting a new car all the time, and don't do much work to them.

I financed my cars, but only lease my trucks when I buy them new because I know how often I will want a new one so it is worthwhile to me.

Dealerships are always willing to take a car back early but make sure you read the paperwork on your new car carefully that they didn't roll it over into your new payment. OR wait for Mazda to come out with a pull forward program on your car, and in the meantime try not to go too far over the mileage.

Sometimes going over the mileage will end up being cheaper for you than paying to get out of the lease, but you have to re-run the numbers. You don't ever have to turn it into the same dealer as long as it is a Mazda dealer it all gets sent back to the same place, Mazda Corp.