Consumers who lease vehicles are confronted with a decision after a few years of ownership. Do I give back the car after the lease ends or do I buy it?
The decision is more relevant today than ever because of low buyout prices written into lease contracts several years ago versus today’s unusually high used-vehicle prices.
The result is that many consumers will discover they can buy their leased car for less than market value. That makes it financially a good idea to buy, even if they only want to resell it.
Here are factors to consider if you’re thinking about buying out a lease.
Buyout price
In lease terminology, this is essentially the “residual value” of the vehicle listed in your contract. This is the predetermined price you agreed to pay if you wanted to buy at the lease’s end. The buyout price can vary by the amount of a security deposit or a buyout fee.
Market price
Find out what your vehicle is really worth. Go online to such websites as kbb.com, edmunds.com and nadaguides.com. Look up current market values — retail prices — for your exact model, plugging in mileage and the vehicle’s options.
Compare
How close are the two numbers — the buyout price and the market price? The main question you’re trying to answer is, “Could I buy this exact vehicle as a used car for less money than my buyout price?”
“Just make a comparison to see how it stacks up,” said Ronald Montoya, consumer-advice associate with Edmunds.com. If you’re going to “flip” the vehicle — buy it and resell it yourself — compare the buyout price to private-party or trade-in values.
Penalties
Also include in the calculations any penalties you might incur because you’ve exceeded the mileage limit or because the vehicle has sustained excessive wear and tear. This is money you have to pay if you return the car but would not have to pay if you bought the car.
On the other hand, excessive miles and wear reduces a vehicle’s value, meaning the car you’re buying could be worth somewhat less than the residual value, which assumes no excessive miles and wear, said Mark Ragsdale, author of the book “Car Wreck,” about the U.S. car industry.
Maintenance history
Perhaps the most difficult factor to assess is your peace of mind. How much is it worth to know a vehicle’s driving and maintenance history?
“This is a great way to get a used car, because you don’t have to worry about a car’s history. You’re the one who owned it,” Montoya said. “Even if it costs a little more, it’s less of a risk than buying in the used market.”
Negotiate
Contact your leasing company — not the dealer — and ask if they will lower the buyout price. Unfortunately, few leasing companies will allow you to haggle, but “it’s definitely worth asking the question,” Montoya said.
Buying out the lease for a vehicle can be a good idea — especially if you can buy it for a great price.
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