Tips on Buying Cars/Lease or wait?


Hi Roger,
I currently have a 2008 Jeep Patriot. I've been given a trade in value of $5000 and owe $10000 so I'm upside down. I recently refinanced for 48 months at $269.08.  I recently started having a few issues with the vehicle and those combined with a small rust area and needing new tires, I'm figuring I will need to put at least $300 for tires plus possibly more if the rust gets worse as I would assume the trade in value decreases dramatically.

I've gone to look at a new Jetta which seems very reasonably priced and am wondering how to determine if it would be smarter for me to roll my negative equity into leasing it or pay for the repairs and pay down negative equity on the existing vehicle before I lease a new one.  I don't know if it would be chasing my tail by paying down negative equity while creating more, and I also don't know if paying for the repairs would be throwing good money after bad.

The dealer tells me the Jetta on a 36 month lease would be $390 including taking care of my negative equity.  That's an increase of $120 over my current payment, which at the end of the lease would mean making up $4320+$600 down for a total of $4920... basically the same as my current negative equity, all while owning a new trouble free(I hope) vehicle.  What makes the most sense in this scenario from a smart money standpoint?



You are asking almost all the right questions ...I have just a sec but will expand on this answer later today when I get a lull in the action. What I am going to be telling you to do is the best way to get out of this and put yourself in a position to beat the deal and not get screwed. I've written several answers to the questions about rollout negative equity into a lease ... Your payment will fall far below the 390 if you are a little bit more patient and follow my advice... It's not rocket science but it is the best way to do things when you have dis equity in a car that is falling apart and have more payments than car left.

Rule #1 NEVER NEVER NEVER trade in a car to buy a different car and that rule applies to almost every situation you can get into. When you trade in your car to buy a car then you are selling your car to the dealer for what he tells you it's worth ...which is going to be a wholesale figure...he is then going to sell you his car at retail,... Just like dealers do. Wouldn't it make a lot more sense if you sold your trade in at retail and then bought his for its wholesale value? Then let's do it.

Get your Patriot detailed and make sure the tires are well over 50% and the brakes work and then write yourself a really good ad that tells a story about your car  and how well you took care of it and why you are selling it .... Because that's what we are going to and then we are going to post it up all over Facebook

now instead of getting 5000 for your Patriot  you are going to 8995 it and take any offer over 7000... Okay more later today's

SORRY IT TOOK A COUPLE OF DAYS TO HIT YOU BACK ...Things are crazy busy around here as we come screaming into the year end.

Here is my plan ...I am going to post some of the answers I gave to the same exact question you are asking (mostly) and after you read them you will be able to formulate specific questions regarding your specific situation ... once you get to that point ...write them down and then let's have a phone conversation and I will walk you through this process all the way so that you can escape the negative equity money pit and beat the dealer on your new car purchase or lease ...fair enough? Here they are ...when you have your questions ready to go send me an email with your phone number to my private email at

  lease negative equity question
Question:   I know you have answered this question before, but I question a specific detail about how negative equity is calculated into a lease contract and hope you can help.  My partner wants to trade his BMW M3 in and lease a new Infiniti Q50 or Volvo S60 to lower payments and fuel costs.  There is about $4,000 in negative equity.  I noticed that the negative equity gets factored into the capital cost.  Then, the contract factors depreciation (roughly 37%), the money factor, and finally the monthly payment.  By this method it appears that he will only pay 37% of the negative equity.  How can this be?  Or, am I misreading the typical lease contract.  Thank you.
Answer:   Hi Jesse ...

First off your partner may not have 4,000 in negative equity if he were to retail the Beemer himself on Craigslist ...that's the smartest way to do it!!

But if for whatever reason that isn't a viable option then here is how it works:

The Cap Cost is the (Hopefully) discounted price you pay for the car to that number ...let's use 35,000 for the price he negotiates the cars actual MSRP before any package discounts (the highest number you can find on the Munroney sticker so not counting any ADM is the number that the residual is multiplied against in our example lets say the MSRP (before discounts) is 37,500...if the residual is 70% then (.70 x 37,500 = 26,250 = LEV or Lease End Value)

so back to our calculations for this car you take the cap cost

$35,000.00 PLUS trade in value of lets say 10,000 minus the payoff of 14,000 = 39,000.00 plus DMV Fees  etc. The bank is going to write a check to the dealer for the 39k...he is going to pay interest on the 39k ...what makes the payment lower (usually) is the principle amount he pays back is alot less than the 39k ...its only 39k - 26,250 = 12,750 do you see that ALL of his negative equity is being paid back? with no negative equity the principle payback would be only 8,750. or 4k less .... sales tax is assessed to each payment equally as they are paid (in most states) (unless you are in Oregon ...Home of the Oregon Ducks!! Go Ducks!) where you pay zero sales tax. let me know if I need to go further or if this answers your question because I am all yours until you are completely happy (and dually impressed no doubt lol)


Harrison...thanks for the great question ...hang on because I am going to put about $6,000.00 real dollars into your pocket right now. This won't come without some small amount of effort on your part but it will work out to be about $1,000.00 per hour.

#1 A dealer buys at wholesale and sells at retail ... a good gig if you can get it because if you do it long enough the next thing you know you own the Utah Jazz or some other type of professional ball club. The good news is that you can put yourself into the shoes of the dealer when buying and selling your own cars very easily. How do you do it? Simple!


The perceived negative equity in your trade in that caused you to send in your question isn't real ...yet! Should you buy into the frame the dealers want you to sign up for then you will most certainly be locking up that negative equity and making it very real indeed. I put the book to your Cadillac Escalade and assumed it was a 4 x 4 and that it had a moonroof, and the premium package and allow wheels and when I did that I came up with your Escalade having a Wholesale Book Value of $41,957.00 and a retail book value of $45,634.00 ...and the dealer wants to give you $34,000.00 Hmmmm ... I'm sure he would.

It's impossible to win the price battle that follows the tradein battle or is part of it) as long as you give the dealer the club to beat you over the head with ...and thats what you are doing by having a trade in ....NEVER NEVER NEVER TRADE IN A CAR WHEN BUYING A NEW OR USED CAR...AND YOU REALLY DON'T WANT TO EVER DO IT WHEN LEASING A NEW CAR ... Here is what you do instead:

2. SELL YOUR TRADE YOURSELF!! From your question I gathered that your payoff was somewhere in the $38,000.00 range right? In other words your payoff is approximately $4,000.00 below the cars wholesale book value and a whopping $7,600.00 below your cars retail value and the dealer wanted to aggravate that math by another $4,000.00 to a staggering $8,000.00 below its wholesale value and $11,600.00 below its retail book value.

  a) Wash your Escalade and have it professionally detailed.

  b) Take about 40 real nice high resolution photos (and upload them all to a photobucket account)

  c) Write a good Craigslist ad and tell the story and extoll the virtues of your car ..."oil changed every 3k miles" , "1 owner" ..."All maintenance's done right on schedule" then price your rig at the bargain basement price of $39,995.00!! include a link to the photobucket pics.

  d) Retail your trade in to someone using Craigslist or some other online method if you use several. It will take a week or so probably and maybe two but it will sell at that price and you would still have some money to give ($2,000.00).


4. With the credit scores it takes to lease a car you could buy the car and get an interest rate in the 1%'s to 2-3%'s which means that for every $1,000.00 you finance your payment will be roughly 18.00 per month if you were to finance a $10,000.00 car your payment to buy the car would be approx $180.00 per month (at 60 months) at 84 months your cost per $1,000.00 drops to $13.00 per 1,000 per month so  a $50,000.00 Audi A6 would cost you approximately $650.00 per month...we all understand what a good interest rate looks like and what a bad one looks like right? PLUS we can all go to a credit union to get our own financing in place before we buy a car so that the dealer marking our interest up won't be a concern of ours right?... very few of us know whether a money factor of .00071 is good or bad and the checks and balances provided by having outside lending options does not exist when we lease a car because credit unions generally don't lease cars ... captive finance companies owned by the automakers do (plus a few of the larger banks) for the dealer marking up the money factor ...or the internal cost of the money when leasing is a no brainer because no one knows what our buy rate is on these types of products leasing opens the door to getting porked a little on the rate.

5. Leases are generally shorter term than purchases 36-48 months ... purchases on larger balances routinely go out to 84 months. a 36 month lease payment is almost the same as an 84 month purchase payment and sometimes more depending upon the car you choose.

6. Leasing is the exact same as renting ...don't kid yourself.

7. Leases can be expensive to swap out of prior to lease termination or very close to it.

8. leases are a great way to go for the person who never owns their car anyway and is always in a constant state of buying can generate some positive equity in a leased car when the cars value for whatever reason (low miles) is greater than its payoff or lease end value.

Look here is what I think ... if it were me I would immediately get my escalade up on craigslist and autotrader to retail it. Once it was up I would start to shop for my next car so you can pull the trigger immediately once it sells ... since its an expensive car to be selling the odds are great that whoever buys it isn't going to spank 39k in 100 dollar bills into your hand the same day they look at it. so you will have a day or two to react before you are on foot. I would find the car I liked ..,drive it ... then go home and do ALL of my negotiating from the comfort of my home. PERIOD! Never spend a second sitting in a dealership waiting for the salesman to come play car buying games with you for an entire saturday afternoon....after you find the car then the next time you walk into the dealership should be to sign the papers and leave in your new car. Lastly I would never buy a brand new anything ...I would find a car with under 5-6,000 miles on it possibly 1 model yr old and hopefully certified (which gives you a much better warranty than a new car) and I would save another 6-10,000 dollars. I can walk you through this entire process if yoyu are tired of getting the short end of the stick but you would need to play it the way I tell you if you want to learn how to beat the dealer ... its a very liberating feeling and a lesson that you can use for your entire lifetime.

ask follow ups

Roger The Car Guy!!!

Hello Loretta,

They sure are proud of those Lexus's when they sell them and not so much so when they are taking them back in on trade. Sorry to hear about your situation.  

In hindsight the best answer might have been to keep the CT and find a nice cheap pure owned family people mover.  But let's. Get to your questions:

1. How can a leased car have so much negative equity so quickly ?

Since you were only  2 months into this lease the dis equity  probably didn't come from the fact hat it was leased.  I will explain why in a second but first I need to know more about the lease terms specifically:

 A) did you roll any negative equity into the lease on the 200h?
 B) even if you don't think you did was there any trade in on that lease with any payoff  whatsoever?
 C) what were your lease payments ....term of lease... And how much did you put down at lease signing?

Ok back to why it wasn't the lease that caused the negative equity. Let's assume your lease payment was $500 per month when you lease a car equal portions of that $500 monthly payment go to pay for interest and depreciation. Of this $500 monthly payment let's assume that $400 goes to depreciation and $100 to interest We all know that cars depreciate most rapidly at the start of its lifecycle or when it's driven off the lot in other words cars don't depreciate in
Equal installments every month.... Add to sudden decline in value as you drive it off the showroom floor the fact that the Lexus dealer probably made anywhere from $4-$5000 in profit on the transaction where you purchased the 200 H. If the Lexus took a $4000 hit when you drove it off the lot and the dealer made $4000 profit and you've only paid for $800 in depreciation I think you can see how quickly it can add up. Even though the car was less than two months old and had very few miles on it since it had been registered to somebody it couldn't be repaired as anything but a used vehicle and even the Lexus could've certified the car and sold it for almost the same price. I always preach selling any trade-in yourself instead of trading the minute the dealer put it on craigslist sell it yourself and save yourself thousands and thousands of dollars and this is a good example of just how much difference there is between the cars wholesale value ...the pay off .... And it's retail value

I know that that doesn't take the sting out of what happened at all and I don't know how to make it any better since it's already happened. I would definitely notify people at Lexus and the public to let them know that the dealer lied to you about selling your car. Lexus cares very deeply about the reputation of the dealers who ride for their brand and a complaint would not go unnoticed or on commented on. You should also post your experience with this dealer on places like ripoff report and other prior buyer forms in your area to let them know how you were treated. Well pet this happened it one of my sisters I would not have unwound the original deal but I would've done something to take the sting out of the new lease my thinking is that it's likely they made a big profit on both Cardinals the 200 H and the new one.... And that's perfectly legal but it's also kind a messed up

  Infiniti lease and negative equity
Question:   Hi Roger,

In June of 2012, I leased an Infiniti G37 for roughly $360 a month with no money down, no taxes, etc., 39 months, 10,000 miles a year.  I drove out of the dealership writing a check for just the first month's payment.  Since I had never leased a car before, this seemed like a phenomemal deal.

Six months after I leased the car, I took a new position and instead of driving about 8000 miles a year as I had done my entire adult life, I am now driving about 15000 miles a year.  I am now out of miles with a 13 months left on my lease.

I started shopping around to see about getting out of this lease into s new Q50 or maybe one of the new Lexus models.  You probably know where this is headed so I will make this short.  My current payoff on the G37 is $27000 and they are telling me the value of the car is between $19500 and $21000, depending on which dealer you ask.

I knew when I did the lease that they were dumping vehicles to make room for the Q's that came out last year.  However I did not know that they has such a supply that they are still trying to sell the 2013 G models new!!

I now know that they set the residual value at the end of the lease at roughly $24000, didn't think to ask back then.  Based on a sticker price of $40,000, thats a residual factor of 60%.  I have found that the best cars have a 3 yr residual of about 55%.

I feel like they intentionally structured the lease in a way that harms a person that needs to end the lease early.  What is your opinion of this and does anyone else think that this is wrong? Have you heard of any lawsuits in regards to this? When a dealer advertises how great a lease is, they always say that you are only paying for the amount of the car you use.

By the way, in the last 6 years my wife has leased 2 Lexus' and a Ford Explored, with no money down, taxes rolled into the lease.  Each time, she ended the lease a year early and had a few hundred dollars of positive equity.  I honestly feel Infiniti new that the way they structured these leases were not realisitic.

Thanks for taking my email.

Answer:   Hi Howard,

Thanks for your question and very accurate observations ....

True: The low payment and the easy lease terms were all made possible because of a subvented money factor and synthetically high residual values.

True: You are also the victim of your job change and your longer commute distance.

False: They didn't intentionally structure the lease terms to harm anyone ...they did it to sell cars that were starting to stack up. All of the auto makers do it from time to time to help dealers clear out aging inventory

False: You are screwed with no way to get yourself right with your lease and your lease end value is so high that you are stuck with this car forever

Here is how you fix the problem or at least mitigate the bloodletting:

In your question you mentioned that the trade-in value of your car according to the dealer was only $19,500-$21,000 and your lease and value was around $24,000. When you trade in your vehicle regardless of what you may think or what it may look like on paper you are basically selling your car to the dealer for its wholesale value and that's all... Most people take advantage of this opportunity because it allows them to have somebody pay off the old car loan, reestablish a new car loan and do it all on one sunny Saturday afternoon at the dealers. The dealer then take your car that he purchased for wholesale he sells it for retail and that's what makes him the dealer. In order for you to bail yourself out of this situation you need to stop thinking like a customer and start thinking like a dealer.

Personally I would never ever consider trading in a car on a different car at the dealer ship... It's such a bad deal in most situations. The good news is that in your situation you don't have a choice about trading your car in at the dealership because if you do you will go backwards $5500 minimum according to your numbers. The answer is to retail the car yourself and then purchase your next car that wholesale value dislike the dealer wants to do you I ran the book she's on a basic Infiniti G 37 four-door sedan with 30,000 miles with local all-wheel-drive Limited no no bling! And guess what? The wholesale value of your vehicle is $25,186 and the retail value is almost $28,000... All that means is in order to get the money you need out of this car to pay off the lease you need to write a very good ad and tell a very good story about the car and what a wonderful car it's been and how well you took care of it and change the oil etc.. Craigslist is free... And people would rather buy from a private party the dealer. Just make sure that you are conscious of the prices being charged on the new G37's and the really late-model G37's so that you are priced accordingly. I would list your car right now for $26,000 and change (hopefully you have up to couple thousand bucks floating around should you find a quick buyer and need to make up a deficiency between the purchase price and the payoff. Personally I would buy $1000 grinder car to commute with for the next six months to get your mileage under control and then list the car and retail yourself out of it.

On cars like this with the huge spread between what the actual cash value is and the payoff selling it yourself is going to save you at least $4-$5000 and it's worth the small amount of time it will take you to do it and do it right. My e-mail addresses sent me a copy of your ad after you have written it and I will fix it for you so that it makes your phone ring. Your other option is to finish the lease continue to drive it pay the mileage penalty against which they will let you roll into the next car loan or car lease depending what you decide to do. A final option would be to have somebody take over your lease payments for the last 13 months on one of those programs where leased cars are traded around like baseball players.

After many follow-ups if you want I'm here with you I feel your pain and while I can't make all the pain go away I can certainly take all of the sting out of it. Make sure you fill out that survey once you are completely satisfied making sure to give your friendly info provider perfect scores and maximum bonus points  

Tips on Buying Cars

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Roger Alvey


I can answer any question about the car buying process. I am a recognized industry expert on all issues regarding auto finance, including sub prime and buy here pay here financing, I can answer questions about car lock out systems, GPS monitoring by your bank, and about auto recovery methods and defenses. I am a 20 yr car industry expert and can tell you what to look for in a used car, how to negotiate the deal, help with how to market your own car, and how to negotiate with the internet department of any car store. I can tell you every single way the dealer is set up to beat you and how to avoid those traps, I can discuss all aftermarket and extended service contract products you will be offered in the finance process, I have lectured extensively on "The Best Way to Buy a Car" to civic groups and university students. I am a credit expert and can tell you what the dealer and banks are looking for and the rate you can expect to pay. HERE IS THE LINK TO MY OTHER ALLEXPERTS CATEGORIES WHERE I HAVE ANSWERED LOTS OF QUESTIONS HERE IS A LINK TO MY BLOG


20 years industry experience in top management of dealerships and dealer groups. Recognized industry expert since 2004 in the Top 10 industry experts for The Gerson Lehrman Groups Auto Industry Council. I also do consulting work for Atheneum Partners, Expert 360, Expert Connect and Coleman Research. I have been a franchise owner and understand all facets of the auto industry from the time the car leaves the factory until it leaves the lot with it's new owner. I have written training materials for both the prime and the subprime sales and finance process.

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