How do you avoid dealer markup on a lease buyout loan?

What should you ask before anyone arranges your buyout loan?

To avoid dealer markup on a lease buyout, start with the leasing company, not the showroom: get your lessee payoff in writing and ask whether you may use outside financing. Then judge any loan offer on its rate, term and total cost, with each add-on priced separately. The buyout price is usually fixed; the financing is where cost gets added.

What did Silas ask when he called his leasing company?

Nobody named Silas called anyone: he, his leasing company and all the numbers here are fictional, built to make the comparison concrete.

Silas leases a Volvo XC60 and lives in Queens, New York. Two months before his lease end, a letter from the dealership where he had leased the car invited him to “let us handle your buyout.” Before replying, he set aside a lunch break and called the leasing company with four questions written on an index card.

1. “What is my lessee payoff, and through what date?” The representative read it out and agreed to email it, dated, with the last day it would be honored.
2. “Can I pay it with financing from outside a dealership?” For his contract, the answer was yes, with instructions for where a lender would send funds. He knew that answer belonged to his lease alone; other lessors can and do set different rules.
3. “Would a dealer be quoted the same payoff?” The representative said a dealer payoff could differ from the lessee figure. Silas made a note to compare against his own number only.
4. “Who handles the title once you’re paid?” He wrote down the steps, which pointed him to the NY DMV for title and registration.

Ten minutes, four answers. He now knew the fixed part of the deal and that he had a choice about the rest.

Where did the dealer markup show up when the finance office called Silas back?

A few days later the dealership’s finance office phoned. The quote was friendly and simple: a monthly payment of about $663 for 60 months, “everything included.” Silas asked for the pieces in writing. Once the payoff, New York City sales tax (4.875% city plus the 4% state rate, 8.875% all in) and DMV fees were added, he needed to finance about $30,000. The written offer showed a rate of 8.4% and a $2,400 protection package rolled into the loan.

He had also applied elsewhere with one application and received a written approval for the same $30,000 and 60 months at a hypothetical 6.9%. Both rates here are invented for illustration; they are not anyone’s actual pricing. He laid the offers out side by side:

The rate difference alone was $21.43 a month, small enough that nobody would notice it in a conversation about the payment. Over five years it added $1,285.80. The package cost more than its $2,400 sticker because interest ran on it too.

Why did Silas almost keep the protection package?

Silas did not dismiss the protection package out of hand. He asked for its contract, read what it covered, and checked the cancellation terms. Part of it overlapped with coverage he already had through his insurer. What remained was a service contract, something an aging car might justify, so he got stand-alone quotes for similar protection and only then opened our page on extended warranty options once a lease is bought out. He also checked whether gap coverage made sense for a loan that started close to the car’s value.

In the end he took the outside loan, bought a stand-alone service contract he had chosen himself, and passed on the rest. What he would do differently: make the leasing-company call before the dealership’s letter even arrived, so the first number he heard was his own.

What should go on your own version of Silas’s index card?

• Ask the leasing company first for your lessee payoff, its good-through date and whether outside financing is allowed. The payoff quote walkthrough covers the details.
• Separate price from financing. The residual is usually set; the rate, term and products are where choices live.
• Get every offer in writing with the rate, term, amount financed and total of payments, then compare totals rather than monthly figures. The lease buyout calculator makes that quick.
• Add up the amount financed yourself. It should be the payoff, any tax and fees you chose to roll in, any product you deliberately picked, less your down payment.
• Question every fee you do not recognize, such as a documentation charge: what it pays for, and whether it is optional. The rules on such fees differ between states and between dealers.
• Know your alternatives. The list of places to get a lease buyout loan shows the routes that don't run through a dealership.

If you would rather keep a dealership out of the financing step, you can route your lease buyout financing through Champion Auto Finance with a single private application. Champion, not being a lender, has no approval to promise Silas or you; the lender’s underwriting makes that call, and within whatever it allows we press for the best rate possible.

What else do drivers ask about markups on a buyout loan?

Keep reading

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