# Terminating VW lease.



## Dirt Slow (Mar 21, 2014)

In another thread here, someone said that VW made it easy (relatively) to terminate a lease. I have never leased and probably would not terminate...but the details would be appreciated if anyone knows anything.


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## shawshank redemption (Jan 29, 2009)

terminate it and get into another brand's car or terminate the lease and walk away? 

if you want to trade the lease into another brand, the other brand can buy you out of the lease for the payoff (there will probably be negative equity rolled into the new car)

if you want to terminate the lease and walk away, its more complicated. If you are within 90 days of lease maturity you can terminate it by paying off the remaining few payments. If you are outside of 90 days, you can still terminate the lease by paying the remaining payments but the car is then sent to auction. If the car pulls less than the payoff at auction, VW send you a bill for the difference.


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## Dirt Slow (Mar 21, 2014)

shawshank redemption said:


> terminate it and get into another brand's car or terminate the lease and walk away?
> 
> if you want to trade the lease into another brand, the other brand can buy you out of the lease for the payoff (there will probably be negative equity rolled into the new car)
> 
> if you want to terminate the lease and walk away, its more complicated. If you are within 90 days of lease maturity you can terminate it by paying off the remaining few payments. If you are outside of 90 days, you can still terminate the lease by paying the remaining payments but the car is then sent to auction. If the car pulls less than the payoff at auction, VW send you a bill for the difference.


OUCH!

Looking at trading in my NB Miata on either a TDI wagon or a new GTI. Was considering leasing, but I think I will just finance it. 

Thanks!

Chris


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## Maximum_Download (May 17, 2010)

Dirt Slow said:


> OUCH!
> 
> Looking at trading in my NB Miata on either a TDI wagon or a new GTI. Was considering leasing, but I think I will just finance it.
> 
> ...


It's more nuanced than that. Leasing is cheaper, but far more complicated. THere's a lot of variables that need to be nailed down. Do it right, and your payoff isn't far out of line, and you can get out of the lease quicker. Do it wrong, and you can get buried.

The answer you are looking for is: You need to research more before you make a decision.

The short response is this: Leases have a buyout. That buyout is your residual at the end of the lease, plus the balance of unpaid payments on the lease.

If the residual is artificially inflated (BMW, I am looking right at you) there is a very high chance you will NEVER be right side up on the lease, and you will be stuck with it till lease term unless you cough money up.

VW tends to not do that, but you need to time the deal to make sure you get both an advantageous Money Factor, AND a good residual. Right now, MkVI GTIs are not leasing well because the MkVIIs are on the way and they just don't have much of an incentive to throw huge money at GTIs. That's why I ended up with a GLI - the Money Factor and Residuals were MUCH better on that. SO what we have is a situation where a $30,000 Jetta GLI Edition30 was cheaper to lease than a strippo $25,000 MkVI GTI with no moonroof.

I wouldn't bet on good lease rates for the MKVII either, for much the same reason - they will sell well and VW will have no incentive to incentivise the lease. I would encourage you to look at the GLI for that reason if you are looking to make a move soon.

TO break a lease early, and cleanly, you need to have a buyout that is lower than the market value for the car (trade in value). With VWs, IF you lease properly, that break even point is usually at the 1.5 to 2 year point into a 3 year, 15k per year lease...and also assumes you stay under mileage.

Hopefully this makes sense.


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## SchnellFowVay (May 20, 2001)

shawshank redemption said:


> terminate it and get into another brand's car or terminate the lease and walk away?
> 
> if you want to trade the lease into another brand, the other brand can buy you out of the lease for the payoff (there will probably be negative equity rolled into the new car)
> 
> if you want to terminate the lease and walk away, its more complicated. If you are within 90 days of lease maturity you can terminate it by paying off the remaining few payments. If you are outside of 90 days, you can still terminate the lease by paying the remaining payments but the car is then sent to auction. If the car pulls less than the payoff at auction, VW send you a bill for the difference.


This is not very accurate. I mean, it is correct in a narrow set of circumstances, but it leaves out the most important aspects of breaking a lease.

Matt's (Maximum Download's) post is far more informative and accurate.

I have broken a few leases, and it's fairly easy to do.

From a functional standpoint, think of the lease as a finance arrangement for the entire value of the car + taxes + fees + money factor.

When you lease the car, every carmaker that I am aware of provides a website where you can look to see your "buyout" amount -- that's the amount it would take to buy the car from the lease company and terminate the lease. At the beginning of hte lease, this number will be very high. SO, for example: I bought a 2014 Mazda6 a few months ago. THe negotiated price wasw ~$23,500, there were some taxes, dealer fees, acquisition fees, etc., plus the money factor. I put zero down. I have since made two lease payments.

When I go to Mazda's website and I click "buyout quote," it quotes me at ~$25,500 to buy out the lease. In other words, if I can come up with $25,500 right now, I can own the car outright.

So how does that work? Well, let's say I Drove my Mazda to Carmax, and they offered me $20,500 for it on a trade-in. If i could come up with an additional $5,000 of my own, I can trade the car into Carmax (+$5,000), break the lease, and Carmax pays Mazda the $25,500 to own the car. I walk away. SImilarly, if I suddenly decided I wanted a MAzda5, I could back to the Mazda dealer, and if they offered me $20,500 as a trade-in for my car, they could roll the extra $5,000 in "negative equity" into my next car purchase.

What Maximum Download was referring to is that, just like in traditional financing, and depending on residual, many cars will eventually "Break even" where the car is worth MORE than the lease buyout. In this scenario, you have essenitally built "Equity" that can be used either by buying the car at the end of hte lease, or trading it in and roling the equity into another car.

With automakers that inflate residuals (i.e. BMW), this will almost never happen. A good story is when I paid $39,900 for my wife's 128i convertable via a lease. After 18 months she wanted another car. We still owed the lease company in the ballpark of $33,000, but the highest trade-in offer we could get was $22,500 -- meaning that we had acquired a substantial negative equity. THe beauty of hte lease, however, is that at the end of hte term, you can just give the car back and not deal with the negative equity. In other words, with a lease, you can always capture the upside, but you can force the "Downside" onto a dealer -- which is a significant attribute with luxury cars that have inflated residuals.

On the flip side, Honda tends to have crappy residuals, and their cars hold value very, very welll. As a result, in as little as 18-24 months, many people already have equity in their lease.

I hope this helps.


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## StlVDub (Aug 1, 2010)

SchnellFowVay said:


> This is not very accurate. I mean, it is correct in a narrow set of circumstances, but it leaves out the most important aspects of breaking a lease.
> 
> Matt's (Maximum Download's) post is far more informative and accurate.
> 
> ...


Very interesting and detailed post. Now I have a question...for example, I leased a 2012 base 4 door GTI 2 years ago this July. I put down I believe a little over $4,000 (the equity from my trade-in) which then got me my affordable payment. I also paid for 16,000 miles per year, but I have actually only used 10,000 per year so far (only 20k on the clock now) How does something like that work? I made a big down payment, plus the car has a lot fewer miles than it should with the terms of the lease. Whats the smart move in that situation?


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## Dirt Slow (Mar 21, 2014)

This is making more sense. I usually buy older cars with low miles that have taken most of their depreciation hit. However, I am thinking the next car may very well utilize a different strategy.


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## SchnellFowVay (May 20, 2001)

Dirt Slow said:


> This is making more sense. I usually buy older cars with low miles that have taken most of their depreciation hit. However, I am thinking the next car may very well utilize a different strategy.


Leasing REALLY makes sense if you are planning on buying a BMW, Mercedes, Audi (to a slightly lesser extent) or other luxury carmaker that subsidizes its residuals.

Don't forget, you can ALWAYS buy the car outright from the lease if you want to own it (either during at the lease end), but if the car tanks in value, and/or you don't like it, you can give it back at the end of the lease and walk away regardless of its actual value. An example would be this:

Let's say you wanted a $60,000 BMW 535i (Depreciation nightmare w/subsidized residuals -- perfect "lease car").

You go to BMW, and they offer you a 62% residual on the car over a 3 year lease (forget mileage + money factor + sales tax -- we are dealing with basics here).

That means that the lease company is agreeing to take your car back at the end of 3 years for a value of $37,200.00 (62% of 60,000). Throughout your lease, you will be paying only the difference ($60,000 - 37,200 = 22,800), which, divided by 36 months, is only $633 per month (plus tax, title, money factor, etc.). Not much money for a $60k luxury car. 

Your other alternative is buying the car outright (or financing it).

Let's say you lease the car today, and your friend buys the identical car, for the identical price, outright, also today.

_ then three years pass _

So now it's June 17, 2017. You go on KBB, and you see, to nobody's surprise, that your BMW is only worth 50% of its original value, or $30,000.

Let's say you and your friend both want to get rid of your car today. Your friend who bought the car trades it in for $30,000 (probably less), *so he spent a full $30,000 to drive the car for 3 years (plus interest if he financed it, taxes, etc.)*

You, on the other hand, after paying only 38% of the car's value, can simply give it back to the lease company . * THat means that you only spent $22,800 to drive the exact same car for 3 years (plus money factor, fees, etc.) *. Even though the car is actually only worth 50% of its initial value, your lease was artificially set at 62% residual (thanks to BMW's residual-inflation policies). 

* Compared with your friend who bought the car, you saved $7,200 by being able to "dump" the downside onto the leasing company because you leased the car.*

_ alternative universe _ 

Let's say that, miraculously, your 535i only depreciated 20% in 3 years, so it's worth $48,000. And you want to sell it.

Your friend who bought the car can sell it for $48,000, costing him a total of $12,000 to drive the car for 3 years.

You, at the end of your lease, can buy the car for its residual (62% of $60,000) of $37,200, and then sell it for $48,000. If you net the $10,800 from the sale against the $22,800 you spent on lease payments, * it also cost you only $12,000 to drive the same car for 3 years *.

* The bottom line is that a lease allows you a "put" option to unload your car on the lease company if depreciates like a bomb, but you retain your upside if the car holds its value *.

This analysis doesn't take into account the time value of money, acquisition costs, etc. But the basic premise holds.


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## Dirt Slow (Mar 21, 2014)

Thanks...this is making even more sense now. Every time I have looked at leasing an inexpensive car, leasing has made no sense.Was looking at a MK VI GTI, 1 series BMW, and a Focus ST. Much cheaper on the lease on the 1 series vs the buy, but the GTI and the ST were actually more expensive as a lease than a 60 month conventional loan with zero down.


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## Maximum_Download (May 17, 2010)

StlVDub said:


> Very interesting and detailed post. Now I have a question...for example, I leased a 2012 base 4 door GTI 2 years ago this July. I put down I believe a little over $4,000 (the equity from my trade-in) which then got me my affordable payment. I also paid for 16,000 miles per year, but I have actually only used 10,000 per year so far (only 20k on the clock now) How does something like that work? I made a big down payment, plus the car has a lot fewer miles than it should with the terms of the lease. Whats the smart move in that situation?


Remember leases finance the depreciation only. On a purchase, you finance the entire thing. So on a lease you have a money factor (better known as the buy rate or APR) and the residual. Both are set by the manufacturer, and the residual is based on the MSRP.

In plain English, the manufacturer is setting the base amount (they set the floor and the ceiling) of what you owe. Anything over that is dealer profit.

So putting more money down ONLY buys down your payment...it doesn't actually reduce the amount you owe, unlike a purchase. That's why most lease experts tell you do not put a down payment down, at least anything over inception fees.

That's why you see BMW lease specials for $399 a month....they bake in a $5,000 down payment to get you there. They can make any payment you want by just changing the down payment since a lot of other factors in the equation (MF and residual) are fixed.

It's also important to note at while the residual is cast in stone, the money factor is allowed to be marked up by the dealer for profit. That's why you need to know both these numbers when you lease.

The cheapest leases are cars with a greater than 50% residual, a money factor of less than 3%, and LOTS of incentives. Hondas, Acuras, VWs to a lesser extent fall into this category.


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## sporksforall (Sep 7, 2009)

Maximum_Download said:


> The cheapest leases are cars with a greater than 50% residual, a money factor of less than 3%, and LOTS of incentives. Hondas, Acuras, VWs to a lesser extent fall into this category.



I can attest to this. Only lease I've done was on 2012 Acura TSX. 16 months in and I "traded" it to CarMax for essentially nothing ($200). Had I waited another month or two, I would have gotten money back. I was in mileage trouble already, so it was time to go.

I bought an off-lease 328i from CarMax on which the lessee was undoubtedly upside down and walked away. It's been a great car so far.


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## Dirt Slow (Mar 21, 2014)

sporksforall said:


> I can attest to this. Only lease I've done was on 2012 Acura TSX. 16 months in and I "traded" it to CarMax for essentially nothing ($200). Had I waited another month or two, I would have gotten money back. I was in mileage trouble already, so it was time to go.
> 
> I bought an off-lease 328i from CarMax on which the lessee was undoubtedly upside down and walked away. It's been a great car so far.


I would really rather have the BMW of the two, congrats on the purchase.


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## sporksforall (Sep 7, 2009)

Dirt Slow said:


> I would really rather have the BMW of the two, congrats on the purchase.


Thanks. The 328 has been a great car so far. A few issues, but still under warranty. The driving dynamics relative to the Acura... :laugh:


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## Jayizdaman (Apr 18, 2005)

SchnellFowVay said:


> Leasing REALLY makes sense if you are planning on buying a BMW, Mercedes, Audi (to a slightly lesser extent) or other luxury carmaker that subsidizes its residuals.
> 
> Don't forget, you can ALWAYS buy the car outright from the lease if you want to own it (either during at the lease end), but if the car tanks in value, and/or you don't like it, you can give it back at the end of the lease and walk away regardless of its actual value. An example would be this:
> 
> ...



This is single-handedly one of the best write-ups for helping me understand the basic principals of a lease, ever. Thank you.


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## Dirt Slow (Mar 21, 2014)

sporksforall said:


> Thanks. The 328 has been a great car so far. A few issues, but still under warranty. The driving dynamics relative to the Acura... :laugh:


Are indeed infinitely better.


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