When you’re deciding between leasing vs. financing for a new vehicle, one of the things you should consider is your end of lease options. As the end of your lease contract approaches, there are a number of ways to prepare for this occurrence. These include deciding what you want to do with your leased vehicle.
You can choose to turn in your leased car at the end of your lease contract, purchase the now-used car, or use it as a trade-in on another new car at the car dealership or through a leasing company. In some instances, the leasing company might also offer to extend your lease agreement, typically no more than 6 months.
Allow Enough Time for Research
Give yourself at least 90 days to look over your lease agreement and complete the other research you’ll need to help you make a sound decision.
1. Find the Residual Value
Carefully read the entire lease contract, paying particular attention to the residual value. This number is sometimes referred to as the lease-end value. This is the amount you’ll need if you want to purchase your leased vehicle at the end of your lease. Do keep in mind, there are still additional fees and taxes that you will need to pay on top of the residual in order to purchase the car outright.
2. Find the True Value
Finding the true value of your leased vehicle helps you decide if it’s worth keeping it. The best way to do this is to use a service such as Shift, Vroom, or by simply looking at Kelly Blue Book.
Steps to Take After You Receive Your End of Lease Letter
About 30 days before your vehicle lease ends, you’ll receive a letter from the dealership or leasing company. It will remind of information such as the following:
- That the vehicle is subject to inspection.
- That you need to take the leased car to a particular dealership so the leasing company can pick it up
- That you can purchase the vehicle for the payoff amount
- That you might be able to extend your car lease
Your End of Lease Options
There are three options for ending a car lease that are offered by the dealership or leasing company. A fourth option isn’t one that’s universal, but it’s worth mentioning here.
1. Walk Away From the Vehicle
If you choose to walk away from the vehicle at the end of the lease, you’ll need to pay for excessive wear and tear charges and a disposition fee. If you’ve gone over your allowable mileage limits, you’ll also need to pay excess mileage charges.
2. Use the Vehicle as a Trade-In
Using the vehicle as a trade-in for a new car gives you the opportunity to purchase from any dealership and to buy a different make and model. You’ll also avoid any charges for normal wear and tear, the disposition fee and mileage charges for going over the mileage limit.
3. Purchase the Used Car
Because you leased the vehicle, you’re first in line if you want to purchase it when your lease contract ends. The residual value that was established by the dealership or leasing company is the amount you’ll need to pay in order to own the vehicle.
Just like a trade-in, you could avoid paying mileage fees, excessive wear fees, and similar charges if you purchase the used car. However, in some states, like Texas, you might be charged a sales tax when you purchase your leased car.
Some dealerships and leasing companies might also offer you a fourth option. You might be able to renew the current car lease.
Determining the Market Value of Your Leased Car
Determining the market value of your leased car might seem like a quick and easy job with the availability of sites like Edmunds and Kelley Blue Book (KBB). However, these sites often don’t have price information for used vehicles that are only a couple of years old.
Instead, you’ll need to take the leased vehicle to a car dealership and talk to the used car manager. Ask them what the dealership will offer you for the vehicle if you decide that you want to sell it on the spot.
Lease-End Inspection: What to Expect
A lease-end inspection is an important event because it determines if you have to pay additional charges for excess wear and tear. Not surprisingly, excessive wear and tear aren’t universally-understood concepts. There might be some leeway in what you could be charged.
Many dealerships and leasing companies use an independent third-party company to conduct the lease-end inspection. Usually, this involves the inspector coming to your office or home.
Expect the lease-end inspection to last about 45 minutes. Be sure to be courteous to the inspector. If there are any gray areas where damage could be classified as either normal wear and tear or excessive wear, the inspector might have some leeway in the decision.
If the inspection revealed excess wear, you might be able to fix some of the blemishes. Many leasing companies allow their customers to schedule another inspection. At that time, the inspector will ensure that the repairs were completed properly.
Should You Buy Your Leased Car? 5 Ways to Tell
If you’re thinking about buying your leased car when your lease agreement ends, there are a few things that should make it the smarter option.
1. You’re Significantly Over or Under the Mileage Limits
A typical lease agreement is for three years and 36,000 miles — though there are plenty of different options too. If you go over that mileage limit — according to the odometer — during the time you lease the car, you’ll need to pay for the overage when you return the vehicle.
On the other hand, if you’re way under the mileage limit, then you’re essentially giving the dealership or leasing company free money. If you buy the used car, you also won’t have to pay the disposition fee.
However, some dealerships and leasing companies charge purchase option fees. These usually run around $350, so be sure to keep this in mind when deciding if you should buy the leased car.
2. The Car Has Excessive Wear and Tear
If your leased vehicle has excessive wear and tear, be prepared to pay penalties. While some normal wear is expected, more than a few dings, tears in the upholstery, and scrapes could be considered excessive.
Many leasing companies and dealerships use the “credit card” test. If the damage can be covered by a credit card, then it falls under normal wear. Otherwise, you’ll be charged for it.
3. You Can Get a Lower Buyout Price
When you buy your leased car at the end of the lease term, it saves the leasing company or dealership time and money. In some cases, you’ll receive a phone call before the end of your lease with a buyout price that’s lower than what’s in your lease contract. Before you agree to the new buyout price, make sure it’s for the wholesale price of the vehicle — not the retail price.
4. You Like Your Current Vehicle
If you’re one of the many people who like car leasing — only to find out you really love the current vehicle you’ve been driving — it might be time to purchase it. You might also be tired of the hassle of shopping for a new car. The idea of having a monthly lease payment or the headache of a car loan might also prompt you to purchase the car.
5. You Can Sell the Car
If you have a friend or family member who has expressed definitive interest in purchasing the vehicle for its fair market value, purchasing it for the buyout price or residual value the dealership or leasing company established.
End Your Car Lease the Right Way
Before ending your car lease, make sure you complete the following:
Remove all Personal Items
Preferably, you should do this before the end of lease inspection. Personal items include any aftermarket accessories or improvements you’ve made to the leased vehicle. You should remove them and leave the vehicle in the same condition it was when you drove it off the lot.
Contact a Dealership
In theory, you should be able to return your leased vehicle to any dealership of that particular brand. However, it’s best if you don’t assume that this is true. Some dealerships might not want an extra used car on their lot.
If possible, take the leased car back to the same dealership where you bought the vehicle. In some cases — if you’ve moved, for example, or if the dealership is no longer in business — that might not be possible.
Contact a dealership that sells the same brand — such as Toyota — that your leased car is. Set up a meeting with the used car manager for the lease return. If you run into resistance, try looking for a friendly dealership. A lack of other options, however, means you’ll need to be firm about the lease return and speak to the general manager.
Return Everything Included with the Leased Vehicle
Just as you should remove everything that didn’t come with the new vehicle when you signed the lease agreement, you should also make sure you return everything that stays with it as well.
A common item that is often forgotten during the end of the lease process is the extra set of keys. Other items that you should be sure to return include spare tires, tonneau (cargo) covers, and the original floor mats.
Contest Excessive Fees
Just like when you were negotiating leases, you can often also negotiate any fees that you consider to be excessive. These can range from charges for excessive wear and tear to over the mileage limit fees.
If you decide to purchase the leased vehicle these charges might be waived. The dealership might also forgive these fees if you agree to lease another vehicle from them.
Many people count the end of the lease process among the most challenging of the pros and cons of leasing a car. With some preparation, a firm grasp of the process, and an understanding of your lease-end options, it doesn’t have to be complicated.