[ShoogieBoogie]

My Solterra came in a week or so ago, and at the time I asked about getting the $7500 credit passed on through leasing. I heard back yesterday that they are waiting for Subaru Motor Finance to approve using the tax credit for down payment on a lease.

I don't think they'll make a decision in time to help me or even make a reasonable lease offer, but there could be some good news for future Solterra drivers on the horizon.

Open question: Would using the EV credit for leasing-only cause mayhem with residual values and resale values since most/many buyers will be paying full price?

 

[sreidvt]

This is a really interesting topic and one that I have been thinking about recently. It does seem like Subaru offering reduced leasing rates (using that tax benefit) could be very good for potential lessees. So far as I can understand, it shouldn’t change residual or resale values at all. It could just make the car less expensive up front. Depending on the specifics, it could be especially interesting for someone who might want to lease and then buy out the car afterwards. I’ll be very curious to see how this works out for you and appreciate you posting.

 

[KSchneider]

I am thinking it might make the possibility of having the car for 3 years and then not buying it but choosing to get a newer model, presumably upgraded. This might be a similar amount of $$$±.

 

[KJO]

I’m in a similar situation. Car was just delivered to dealership. I called Subaru of America to ask the question; specifically, on the IRS website it says that the IRS is waiting for SOA to submit a list of qualified models. When do they anticipate having this done.

SOA said they would get back to me in a few days. Talked to the dealership today - they said they’ve heard conflicting information and don’t know what is going on.

Will update with what I hear back from SOA.

 

[KSchneider]

That will be a most welcome update. If I hear anything from dealer SA will report.

 

[monty]

I was thinking I'd be good with the credit due to my $5k non-refundable deposit - but I have yet to receive the car. Maybe this will still be available for TY23.
However, if I can effectively get it from leasing that might be tempting. Never having leased though, I'm curious on the pros and cons. Typically we own our cars for 10 years or more. Is it just a case of making lease payments and buying out at the end? I'm assuming it's not worth prepaying loan payments (like prepaying mortgage payments).

Thanks for the education.

 

[JayEM]

YMMV, but my experience leasing my current i3 (which I bought it at lease end) turned out to be less costly than conventional loan financing, BUT that was mainly because used car resale values were sky-high at my lease end compared to the residual I had to pay. My monthly payments were a lot lower than they would've been with a loan, and I didn't have to put any money down.

I'm seriously considering leasing my Solterra, assuming Subaru Motor Finance finalizes things before I have to take delivery - even though the leasing rates (residual and money factor) are much worse now than when I leased my i3 4 years ago (or our Outback 2 years ago).

The ability to walk away from the car after 3 years, if something better is available then (highly likely in EV world), without having to worry about resale value is the major benefit of leasing, IMO (especially for EVs).

 

[KSchneider]

...
The ability to walk away from the car after 3 years, if something better is available then (highly likely in EV world), without having to worry about resale value is the major benefit of leasing, IMO (especially for EVs).

The 3 year option to walk away is exactly my thinking too.

I looked at a lease at my dealer listed on line for a similarly priced ICE car. The cost of cash for the Splterra with no $7500 tax vredit vs. my estimation of a lease for 3 years with tax credit included and then buying at residual cost were close to each other. I have not seen any actual numbers from the dealer for a Solterra lease package. An ICE lease vs. EV lease may have different numbers. I have never leased a car.

 

[JayEM]

The 3 year option to walk away is exactly my thinking too.

I looked at a lease at my dealer listed on line for a similarly priced ICE car. The cost of cash for the Splterra with no $7500 tax vredit vs. my estimation of a lease for 3 years with tax credit included and then buying at residual cost were close to each other. I have not seen any actual numbers from the dealer for a Solterra lease package. An ICE lease vs. EV lease may have different numbers. I have never leased a car.

The current (January 2023) lease factors for Solterra are 53% residual (though appears to be 55% for Premium trim level), and 0.00244 money factor (but 0.00275 for Premium, per Subaru's own website listing, see attachment).

 

[md.]

Where did you get those money factors from? Are you calculating them from the info in the lease offer or am I just missing them somewhoe? I'm considering a lease for the first time, if Subaru Motors Finance figures out the tax credit soon enough for me. I actually have a preliminary lease offer from my dealer, but it didn't include the tax credit and used a money factor that was equivalent to around 9% APR because they didn't consider my credit. With MSRP+destination of $49,720 and 12k miles/year, residual was $27,346, which is 55% residual, I believe.

I've heard that it's not a good idea to put down a lot of money on a lease, but I've never heard the reason. (Actually, I've heard that if you total the car, you end up losing it all, but I have a hard time believing that's true.) It seems to me that if, between the tax credit and down payment, you bring the cap cost very close to the residual, you'll minimize the finance charges that you pay. (The cap/depreciation portion of the payments would go to almost 0, too.)

I, too, would plan on buying out the lease -- assuming that I am still happy with it. For a lease buyout, do you essentially pay the remaining depreciation payments plus the residual and maybe a $699 processing fee? Anyone have experience with this or a good source for information? I would hope that Subaru Motors Financing would be pretty straightforward and not something where I'd have to worry about getting screwed over.

 

[JayEM]

I got the 55% residual and the 0.002751 money factor by crunching the numbers in the Solterra lease "promotion" I posted above. For 36 months/10,000 miles per year.

The 53% residual and 0.00244 money factor were given to me by someone I know who works in automotive incentives (who has access to the figures for all brands). Also 36 months, 10,000 miles per year.

Apparently, the thing that's "set in stone" is the residual, but the MF can vary depending on your credit, and how much money the dealership wants to make on the lease (so it's useful to be able to calculate the MF since in most states the dealerships aren't required to tell you what they're using).

I had also heard (and my source confirmed) that one should put as little down toward a lease as possible. It sounds like that would be just the $7,500 if that gets passed through.

The total finance charge you pay on the lease is the product of the money factor times the sum of (the residual + ACC, the adjusted capitalized cost) times the number of months in the lease.

You cannot affect the residual, but you can affect the ACC. It is the sum of (Agreed Selling Price plus Aquisition Fee (fixed) plus state registration/titling fees plus Dealer Document Processing Fee plus Sales Tax minus any credits you have, including e.g. the Federal EV credit, as well as trade-in or cash up-front (neither of last two a good idea)).

In addition to the financing cost ("rent charge"), your monthly lease payment includes each month's share of the depreciation (total depreciation divided by months).

Depreciation is the difference between the ACC and the residual. The lower the ACC, the lower the depreciation charge, so lowering the ACC lowers two components of your monthly payment.

But, whatever money you pay up-front is lost forever if you have to terminate the lease because the vehicle got totaled. Same with making extra monthly payments. Unlike with a loan, you have no equity in the lease so there's nothing to be gained by making a payment early. It doesn't reduce future finance charges, as it would with a loan.

Once you have a lease, you can each month find out how much it would cost to buy out the lease. At that point, you obviously avoid paying any future finance charges. For example on my current 2021 Outback lease, if I buy it out today (assuming I'm going to at lease-end anyway), I save about $600 compared to the residual plus my remaining 12 payments. I would weigh that $600 against the opportunity cost of the money I have to come up with to pay off the lease. I also save the lease disposition charge ($300), but I do have to pay all the sales tax due (including local) on the buyout cost, along with the registration/titling fees all over again (so the title can be issued in my name, without the leasing company name on there).

I'm sure there are good sources for all this info, I've just gradually absorbed most of it over the course of 4 years and 2 leases.

 

[KSchneider]

Here is a lease offered at my dealer on a Touring model. The same 55% and 53% are in these numbers.

 

[KSchneider]

Based on these numbers adjusted to the Limited model ordered the lease does not seem as cost equivalent as my previous calculations.

 

[JayEM]

$6,275 is a LOT to pay at signing!

How much does the payment go up if you pay just the first month's lease payment at signing?

 

[KSchneider]

These are terms offered on the web site. I have not discussed this with anyone there. I have no intention to proceed at these terms. Can purchase as originally planned.

 

[md.]

I got the 55% residual and the 0.002751 money factor by crunching the numbers in the Solterra lease "promotion" I posted above. For 36 months/10,000 miles per year.

The 53% residual and 0.00244 money factor were given to me by someone I know who works in automotive incentives (who has access to the figures for all brands). Also 36 months, 10,000 miles per year.

Apparently, the thing that's "set in stone" is the residual, but the MF can vary depending on your credit, and how much money the dealership wants to make on the lease (so it's useful to be able to calculate the MF since in most states the dealerships aren't required to tell you what they're using).

I had also heard (and my source confirmed) that one should put as little down toward a lease as possible. It sounds like that would be just the $7,500 if that gets passed through.

The total finance charge you pay on the lease is the product of the money factor times the sum of (the residual + ACC, the adjusted capitalized cost) times the number of months in the lease.

You cannot affect the residual, but you can affect the ACC. It is the sum of (Agreed Selling Price plus Aquisition Fee (fixed) plus state registration/titling fees plus Dealer Document Processing Fee plus Sales Tax minus any credits you have, including e.g. the Federal EV credit, as well as trade-in or cash up-front (neither of last two a good idea)).

In addition to the financing cost ("rent charge"), your monthly lease payment includes each month's share of the depreciation (total depreciation divided by months).

Depreciation is the difference between the ACC and the residual. The lower the ACC, the lower the depreciation charge, so lowering the ACC lowers two components of your monthly payment.

But, whatever money you pay up-front is lost forever if you have to terminate the lease because the vehicle got totaled. Same with making extra monthly payments. Unlike with a loan, you have no equity in the lease so there's nothing to be gained by making a payment early. It doesn't reduce future finance charges, as it would with a loan.

Once you have a lease, you can each month find out how much it would cost to buy out the lease. At that point, you obviously avoid paying any future finance charges. For example on my current 2021 Outback lease, if I buy it out today (assuming I'm going to at lease-end anyway), I save about $600 compared to the residual plus my remaining 12 payments. I would weigh that $600 against the opportunity cost of the money I have to come up with to pay off the lease. I also save the lease disposition charge ($300), but I do have to pay all the sales tax due (including local) on the buyout cost, along with the registration/titling fees all over again (so the title can be issued in my name, without the leasing company name on there).

I'm sure there are good sources for all this info, I've just gradually absorbed most of it over the course of 4 years and 2 leases.

Thank you, that's great information! About 5 minutes after my post, I got the call that my car is arriving today. Actually, the Cassens Transport site that you pointed me to says that it was already delivered! Should be good news, but I have a feeling Subaru Motors Finance won't have the tax credit figured out before I need to make a decision.

I would still have insurance on the vehicle. In the event it was totaled, wouldn't the insurance company pay me what it's worth and then I essentially pay off the rest of the lease and keep what's left over?

 

[JayEM]

Glad yours is arriving already! Mine's still in the pipeline, I'm hoping for Tuesday or Wednesday arrival at the dealership.

TBH, I'm not sure how insurance works out with totaling a leased vehicle. It would be a problem if you are underwater, which of course is more likely with paying less upfront. But you'd have to pay not just the balance owed on the lease but also the residual value of the car (which you obviously wouldn't be able to turn in).

For example, today the remaining 12 payments on my Outback amount to about $6,000, but the residual is $25,250 so I'd have to come up with $31,250 + $300 termination fee, $31,550.

I'm pretty sure the insurance company wouldn't pay me that much, but that's what gap insurance is for.

However, if I'd paid upfront an additional $5,000, my required payout would be less - but not the full $5,000 less.

 

[voxel]

Insurance pays the leasing company not you. A coworker had his leased M340i totaled due to a hit and run and his car was worth more than his residual (he had $11K in equity and was planning to buy the car once he leased ended in two months). BMWFS kept the overage and paid him squat.

Read the fine print on leases. VW would have paid my coworker on the equity overage but not BMW. I looked at one pay leases and most of them returned the remaining money (outside of depreciation and financing cost) - if the car was totaled. Some prepaid leases just keep all your money if totaled.

 

[JayEM]

I guess that makes some sense. The leased car is technically owned by the leasing company. The fact that the lessee is paying for the insurance doesn't change that.

Edit: the moral of that story (with 20/20 hindsight) is that had your co-worker bought out the lease three months before the end, the car would've been his when it got totaled and he would've collected the excess of insured value vs. what he had paid for the car.

Conversely, if the insurance had paid out less than the residual + remaining payments while he still had the lease, he would've been held harmless by the gap insurance included in most leases (not necessarily all, read the fine print).

 

[KSchneider]

As Woody Guthrie sang, "Some people rob you with a six-gun, suone with a fountain pen."