At the end of the lease you may, depending on your contract, have an opportunity to purchase the vehicle. If you would rather keep leasing, here’s what to expect.

The vehicle you leased will be checked for:

  • The number of miles you have driven
  • The interior and exterior of the vehicle
  • A determination on the wear and tear inflicted on the vehicle
  • The timing of your return, whether it’s early or on time with the contract
  • A deduction based on the residual value of the vehicle

All of these factors combined will determine if you need to pay the dealership and additional fees. At the beginning of the lease you make an agreement to keep the car in good condition, and to not exceed the agreed upon mileage.  

Residual value describes the future value of a good in terms of absolute value in monetary terms and it is sometimes abbreviated into a percentage of the initial price when the item was new. In effect, you only pay the “value” of the car that you use. You then get a return based on the value of the car that remains after use.

Buying Your Lease

At the end of your lease you may be conflicted about whether or not to actually buy the car you have been leasing. Let’s say you lease car that you end up really liking. You’ve driven it for years and you no longer feel like trading it in for something new.

Buying your leased car is called a buyout and it works just like any other purchase. You simply need to provide cash or get a loan. Once you make the payment, you simply get to continue driving the car no questions asked.

There are a lot of things to consider before making a buyout, here are some things to consider when making a determination:

Price to Buy Is Less than Market Value

If the residual value is low, you can buy the car for less than it’s worth at lease end. Leasing companies have to resell their returned cars either directly to a dealer or through an auction. Often they will negotiate a buyout price that’s more favorable to you to avoid that hassle and expense.

Penalties

By the end of your term you may have accrued significant penalties. Driving over miles, excessive wear, and a collection of dings and dents can result in a hefty penalty. Depending on the remaining value of the vehicle vs your remaining penalty balance, it may be wise to simply buyout.

Consider all options before making a purchase under these circumstance. It may hurt to pay close to the value of the lease in penalties, but you don’t want to end up with a car you don’t want long term. However, if you enjoy the vehicle, this option could be a no brainer.

Determining The Value of Your Car

Even without heavy penalties on your vehicle, it may still be worthwhile to go through with the buyout. Consider the make and model of your car. Perhaps it didn’t go down in value as you predicted. Maybe it is more durable and comfortable to drive than other car in it’s price range.

Either way, you will need to make a buyout, buy another car, or lease another car. Considering the complexity of calculating the value of a vehicle, it is worthwhile to consult a professional to help you break down the math.

We have an article dealing specifically with the mathematical calculations of leasing that will be available soon.