When your lease-end draws near, it’s time to start thinking seriously about what to do next. Here are the benefits and downsides to the different options.
Know Your Options: Buy, Walk, or Trade
If you’re leasing a car, you’ve probably gotten accustomed to having a newer car and fewer worries about things like engine problems or other hassles—but when the lease-end looms, you’ll need to make some choices. Here’s a breakdown of your options.
Option 1: Buy It
If you fell in love with your vehicle during your lease period, you can opt to buy it for the remaining value. If you don’t want it, the car dealership will purchase the vehicle to resell themselves, or the lease company can take it back. In most states, you can opt to buy the car once your lease is up with no additional fees (though some states may charge sales tax).
If you do opt to buy out your lease and keep the car, don’t automatically go with the financing options offered by the dealership. Call your local bank or credit union first and check their rates—you’ll usually, but not always, get a better deal with your bank.
Option 2: Walk Away
Your second option would be to walk away from the lease. You don’t purchase the vehicle, and you don’t lease another one. There are some financial considerations to think about with this option. When you turn in the car without purchasing it or leasing a new vehicle, you’ll likely have to pay a disposition fee, mileage fees, and wear and tear fees. The disposition fee covers the cost of cleaning and reselling the car and can cost upwards of $300 to $400.
Option 3: Trade It In
Remember the days when you could trade up to a new cell phone for free once your original contract was up? Car leases operate in much the same way. You can always opt to trade the lease in for another vehicle.
You may be able to avoid some of the fees you’d have to pay for walking away if you opt into another lease of the same brand and many dealerships offer additional incentives to encourage you to continue leasing with them.
Which Option Is Best for You?
Now that you know your options, how do you decide which choice works best for you? First, think about what you want. Are you more interested in driving around the latest model vehicle with the most up-to-date features or do you want to focus on paying off a car so that you can own it? Again, it depends on your lifestyle and your budget.
One way to decide is to do a bit of research. Pull out your lease and look for the “residual value” of your car. This number is listed on your contract, and it’s the amount that you would pay to purchase the vehicle at the end of the lease.
Next, go into some dealerships and talk to a used car manager (not the salesperson) and ask them how much they would pay to purchase your leased vehicle. If you’ve always thought of leased cars as belonging to the dealership, that bit might sound a little confusing so let’s look at it closer. If you ask at a few different locations, you can get a rough estimate of how much you could get for the car. If you find a dealership willing to pay more than the residual value, you can walk away with a little extra cash to use for a down payment on another car or to spend as you wish. For instance, if the residual value in your lease contract is $20,000, but you ended up driving the car less than anticipated and it has an actual value of $25,000, then buying out the lease leaves you with a car worth more than the buyout value.
If you’re only getting offers lower than the residual value or the offers are on point with the residual value, then you should walk away or trade it in for another lease to maximize your spending.
Leasing a car has a lot of benefits, but you’ll need to be prepared to do a little research every time your lease ends. While many leased vehicles won’t end with equity that you could tap into, some do, so make sure you check around, so you don’t leave money on the table.