What Happens at Lease End?Apr 06 '01 Write an essay on this topic.
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The Bottom Line A little time considering your lease-end options will be very worthwhile to you.
Most people know that they have to do their homework before they lease to prevent costly mistakes, but often overlook the fact that they can easily make wrong decisions at the end of their lease as well. Typically, you have four choices at the end of a lease: extend, buy, trade, or return. First, extending your lease is not really an extension at all. It's really ending your old lease and beginning another. But this time, even though you lease the same car you're been driving, it's considered a used-car lease. And it's usually difficult to get a good deal due to high interest rates, high cap cost, and low residuals. And then there's maintenance costs because the warranty has expired, or will expire during the second lease. Don't be sucked in just because the monthly payments are lower than you were paying before. Now if you don't "extend" your old lease, should you buy, trade, or return your vehicle? It depends. Most leases allow you to purchase your vehicle at lease-end for its "residual" value, as stated in your lease contract. You need to compare that value to the actual market (retail) value and trade-in value for your vehicle, which you can get at Edmunds (www.edmunds.com) or Kelley Blue Book (www.kbb.com). If your residual is less than these values, you have "equity" in the vehicle that you should use by either buying the vehicle from the leasing company or trading for a new purchase or lease. If you returned the vehicle to the leasing company, you would be simply giving them this equity, free money, that rightfully belongs to you. Even you don't want the vehicle, buy it and then resell it for a profit to reclaim your money. Even if the residual purchase price is higher than the actual market value, you may be able to negotiate the price down to something more reasonable — if you really want to own the vehicle. Remember, if you just returned the vehicle to the leasing company, they would not be able to sell it to anyone else for the inflated residual price. So, why not lower the price and sell it to you? There's another reason to consider buying at lease-end, even if the price is not quite right. If you have excessive mileage and/or damages that the leasing company would bill you for if you returned the vehicle, you should do some figuring to determine which way would be less expensive for you: 1) buy the vehicle for a higher-than-market price, or 2) return it and pay for the mileage and damages. If you need more details on these techniques, please visit my website, LeaseGuide, at www.leaseguide.com. Al Hearn  |
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