Lease buyout retrospective (Colorado)

Update August 2024 -- several people have said that Colorado lease buyouts now need to be done through a dealer.

If this is the case, consider:

  • Shopping around for a dealer who will process the lease buyout for a low (or zero) doc fee
  • Not trying to do the buyout through the dealer where you signed the lease. (They have an incentive to NOT process the buyout, since they may lose some kickback from TFS)

Update September 2024 -- several people have said that dealers will not process a buyout until the car is registered

You can't register the car until Colorado processes the title -- this took 50 days for me. If the dealer won't process the buyout until the car is registered, you may end up making 1 or 2 additional lease payments. That would reduce your buyout savings by the extra amount of rent you pay ($280/month in my case). So the benefit may be closer to $5000 than $5400.

Read the comments below for full details.

Original post:

I leased my R4P from a Colorado dealer, then immediately purchased it from Toyota Financial Services (TFS) to take advantage of the $6500 lease cash.

I saved about $5400 compared with paying cash. It was well worth the extra time I spent to do the buyout.

I’ll share the details for other Coloradans who are considering a lease buyout.

Lease contract

My Colorado lease contract (with names/numbers blacked out, and key provisions highlighted): https://www.reddit.com/r/rav4prime/comments/18vz6lw/lease_contract_for_colorado_2023/

Lease and buyout cost: $45282

Car price: $45930 + fees + tax

Price               $ 45930 (negotiated with dealer. Includes delivery and handling.)
Acquisition fee     $   650 (lease fee set by TFS)
Doc fee             $   690 (varies by dealer; same as if you bought the car with cash)
---------------------------
Gross cap. cost     $ 47270 (lease line 9a)

Lease cash: $6500

I signed a 24-month lease with $0 cash at closing.

  • Most of the lease cash was applied as a capitalized cost reduction
    • This reduces the “depreciation” part of the lease
  • The rest went toward the first month’s payment, taxes, and fees

_

Cap. cost reduction $  5131
Sales tax on CCR    $   447
1st lease payment   $   910 (includes about $280 of “rent charge” aka interest)
Title fee           $     7 (set by the county or state)
License fee         $     5 (for the temporary tag; price set by county or state)
---------------------------
Total discount      $  6500

My buyout estimate: $45206 (slightly low)

I estimated my lease buyout costs by taking the residual plus 23 monthly depreciation payments. (Remember, I had to make the first payment -- using part of the lease cash -- when I picked up the car.)

When I leased, the residual was 62% of the MSRP. TFS updates this figure periodically. Also, the residual depends on the lease term.

Residual            $ 28777 (lease line 9d. Set by TFS)
Depreciation        $ 12805 (lease line 9e, multiplied by 23/24)
Sales tax           $  3624
---------------------------
Estimated buyout    $ 45206

Actual buyout cost: $45282

The actual buyout price charged by TFS was $54 higher than my estimate. Why? I never asked. I probably should have. Probably a processing fee of some kind. I also incurred some other expenses.

Paid to TFS         $ 45259 (buyout price, including sales tax)
Priority Mail       $    15 (2 flat rate envelopes for mailing checks to TFS. Will explain why 2 checks later.)
Title fee           $     7 (Have to re-title the car after buying it from TFS)
---------------------------
Total paid for R4P  $ 45282

Cash cost: $50696 ($5414 more expensive than lease + immediate buyout)

Had I bought with cash, I would have paid $5414 more:

Price               $ 45930 (negotiated with dealer. Includes delivery and handling.)
Doc fee             $   690 (varies by dealer)
Title fee           $     7 (set by the county or state)
License fee         $     5 (for the temporary tag; price set by county or state)
Sales tax           $  4064
---------------------------
Total cash cost     $ 50696

Wait, why didn’t I save $6500?

Cash cost - lease cost = $5414

Why did I only get $5414 of benefit from a $6500 discount? Because there are extra costs incurred by leasing:

Acquisition fee     $   650 (lease fee set by TFS)
Rent charge         $   280 (from 1st lease payment)
Tax on above        $    81 (Sales tax on rent charge and acquisition fee)
Buyout charge (?)   $    54 (Buyout was $54 higher than what I calculated from the lease. Unsure why.)
Priority Mail       $    15 (2 flat rate envelopes for mailing checks to TFS. Will explain why 2 checks later.)
Title fee           $     7 (Have to re-title the car after buying it from TFS)
---------------------------
Total lease costs   $  1087

($5414 + $1087 = $6501. Off by $1 due to rounding)

How long does all this take?

26 days for TFS to agree that I’d paid off the car

Avoid paying a second month of rent/interest: Complete this before your second lease payment is due.

Day 0: I sign the lease and walk out of the dealership with a car

Day 6: I am able to create my account at toyotafinancial.com. I call Toyota Financial Services (TFS) at the number on the website (under “Lease-end options” or similar). I tell them I want to buy out my lease. They give me an amount and tell me they’ll mail me paperwork.

Mistake 1: Apparently you can ask TFS to email you the documents. Do this. It took a long time for them to show up in the mail.

Mistake 2: TFS’s buyout amount did not include sales tax! This is wrong! You must pay sales tax when you do the buyout!

Day 14: I receive the buyout packet from TFS, fill it out, and get a cashier’s check from the bank (no charge). I take a photo of everything and mail it off in a Priority Flat-rate envelope to Tempe, AZ.

Day 20: I call TFS to ask if they’ve received the check. They tell me I sent a check for the wrong amount. After some discussion, we figure out that they had forgotten to include sales tax in the buyoff amount they gave me. So I sent them another cashier’s check for the sales tax.

Recommendation 1: Call TFS 48 hours after your check is delivered (track it online) to see if anything is amiss. TFS told me they process checks within 48 hours of receiving them.

Day 26: TFS confirms they received my check and that I’ve paid in full.

At this point, two things need to happen:

  • Register the car. You can’t do this until the State of Colorado completes the titling paperwork. They’ll send you a postcard in the mail when this is done.
  • Get the title in your name. You can’t do this until you get a signed title from TFS.

50 days to register the car

Avoid late fees: If your temporary tags are due to expire before you can register your car, contact the dealer where you bought your car. They can issue you another temporary license plate.

Day xx: TFS mails me a form DR0024, which shows proof that I’d paid the sales tax on the car. This is required when titling the car.

Day 50: I visit the county motor vehicle office to register the car and get my license plates. I write a big check to the county. (I hadn’t received my title postcard from the State of Colorado yet. But I had called the county the day before to confirm that the titling paperwork had been processed.) All they needed was my make, model, and VIN. I thought they’d ask for a bill of sale, sales tax proof, etc. But they didn’t.

72 days to get the title

I called TFS at least weekly to ask if they’d received the title yet. They repeatedly told me that I did not need the signed title from them. They said I just needed a lien release and power of attorney form, which they sent me. But this is wrong! I confirmed with multiple county motor vehicle employees that Colorado requires the signed paper title.

Recommendation 2: Call TFS at least weekly to check on the title. Remind them that you do, in fact, need a signed paper title in hand before the county will issue a title in your name.

Recommendation 3: Be patient with the title. It seems to take about 2 weeks from when Colorado processes the title (e.g. sends the Title Complete postcard) until it arrives.

There is no hard deadline for getting a title issued in your name.

Day 72: I receive a signed title, bill of sale, a lien release form, and a limited power of attorney form in the mail from TFS. They overnighted it to me. Probably because I’d pestered them so many times about the title.

Day 75: I visit the county motor vehicle office to get a title issued in my name for the princely sum of $7. They wanted the DR0024 and signed title from TFS, as well as proof of insurance. They also looked at the bill of sale, lien release, and power of attorney forms. Not sure which of those were actually required.

Day 89: New title arrives in my mailbox.

Colorado tax credit: $5000

Surprise, you get another $5000 discount off the above numbers!

The R4P qualifies for Colorado’s $5000 Innovative Motor Vehicle tax credit. The credit applies to the lease or purchase of a new EV or plug-in hybrid meeting certain requirements.

Highlights:

  • Minimum lease term: 24 months
  • No income limits for claiming credit
  • Tax credit is refundable (i.e. you can claim the full credit even if you owe less than $5k in taxes)

Yes, early lease buyouts are still eligible to claim the credit! From the ITT:

“For vehicle and truck leases, early termination of a bona fide lease agreement for a term of at least two years will not abrogate the lessee’s right to the credit or require any recapture of the credit previously claimed for the lease.”

I’m claiming this credit when I file my taxes. Starting in 2024, it will become easier to claim the credit at the time of purchase.

Links:

Common concerns

  • I did not pay double registration fees. (Estimate registration fees: https://mydmv.colorado.gov/?Link=FeeEstimator)
  • I did not pay double sales tax
  • I did pay a second title fee ($7)
  • I did not pay interest/rent for the entire lease; only for the first payment
  • I did not involve a dealer in the buyout. I handled it all with TFS.
  • Yes, you either need to get the EV license plate or an EV windshield sticker when you register your car. They both cost about $50. Details: https://dmv.colorado.gov/electric-vehicles