Christian P. Pewitt Blogs: Should You Buy Your Leased Car?

Wednesday, September 28, 2016

Should You Buy Your Leased Car?

One of the advantages of leasing is the opportunity to drive more car than you afford to buy. You can get more car for less money with a lease because you only pay for what you use during the lease term.

Let's say you lease a $50,000 car over a period of three years. The terms of the lease say if the car is driven 36,000 miles or less (the mileage cap) and maintained in a certain condition, the car will be worth $20,000 (the residual value) at the end of the lease. Thus, the total of your payments come to $30,000. You get to drive a $50,000 car for three years, for only $30,000.

And, if you'd like, you can buy the car at the end of the lease term. Which begs the question: Should you buy your leased car when the lease ends? Well, it depends.

"First of all, you'll never find a pre-owned car with which you can be more familiar," says Barbara Killeen, automotive expert and co-host of the radio show, The Drive with Alan Taylor. "You'll know its exact maintenance history, plus how it's been driven, and where. When it comes to buying a used car, there really is no better situation."

Keep in mind though, unless you pay cash, it'll cost more than $20,000. If you take out a loan, you'll pay interest. Further, let's say the loan is for three years at $600 a month. You can easily find a new car to lease for $600 a month (assuming you have the down payment to start a new lease).

Another consideration is the actual value of the car at the end of the lease, as opposed to the projected residual. Let's say the car depreciated at the rate of $15,000 a year instead of $10,000. The residual is still $20,000, but the car is only worth $5,000. Here, you're definitely in the no-buy zone; what's more, you might be foregoing some new features by staying with your old car.

"Keeping your lease vehicle means you're buying an older car, which may not have all the new technologies or driver-assist features newer models have," says Killeen. "Plus, if the value of the car is less than the agreed-upon purchase price, you'll lose money if you make the purchase."

On the other hand though, if it depreciates less than expected, you'll drive the car at a discount for three years and you'll get to buy it at a discount after having done so.

Let's say you exceed your mileage cap -- in other words, you drove more miles than agreed upon: You'll have to pay for the extra value of the car you depleted. This is usually expressed in so many cents per mile. Depending upon the amount, it might actually be cheaper to buy the car than pay the penalty. Similarly, if the car shows excessive wear and tear, you'll also have to pay. This is another case where it might be cheaper to buy the car than pay the fees.

If you do decide to keep it, the process is pretty straightforward. When you're down to the last two or three lease payments, tell your leasing company you want to keep the car and you'd like to negotiate a purchase price for the buyout. Yes, negotiate a purchase price.

"I believe anything can be negotiated," Killeen says. "However, you did sign the lease deal that showed the residual value up front for when the lease ends. But, if the vehicle has fallen out of favor with the public for some reason, they probably will be willing to negotiate. You'll never know if you don't try."

After all, the leasing company will have to sell the car to somebody if you don't buy it. This generally means a wholesaler, and a wholesaler probably isn't going to give them $20,000 for the car. So try to work out a better price.

"Make sure you're talking to somebody who has the authority to make a deal, and make sure you take all of the fees, taxes, and registration costs into consideration when you present your offer," Killeen advises. "If it all works out, you could get the best used-car deal of your life."

Are you ready to buy or lease a new vehicle?

Save yourself both time and money at the AskPatty Auto Buying Service, where you can research current models and request a Guaranteed Savings Certificate from your Certified Dealer to get your negotiation-free Guaranteed Savings (available in most states) and streamline the buying process.

by Lyndon Conrad Bell for Motor Matters
When it comes to automobiles, LYNDON CONRAD BELL finds beauty in functionality, performance, and utility. Since 1998, his byline has appeared on Forbes.com, Autobytel.com, SportsCarMonitor.com, MotorAuthority.com, and OnWheelsInc.com. For print publications, Bell has written for Essence magazine, On Wheels magazine, LX magazine, Upscale magazine, the Canadian Auto Press, and Auto World Weekly. A California State University graduate with a degree in Media Studies, Bell resides in the San Francisco Bay Area.