Should I Purchase my Leased Vehicle?
When the end of your vehicle’s leasing period comes to a close, the decision to either lease or buy another vehicle becomes top of mind. There are many reasons personal reasons to purchase a leased vehicle rather than finding a new one, ranging from not wanting to have to search for a new vehicle, to simply liking the car you drive.
Because you know the complete history of your car, purchasing it means there won’t be any unpleasant surprises a previous owner “forgot” to mention. You also avoid paying additional fees that occur when leasing or buying another vehicle (sales tax, for example). The financial equation says to buy whenever the market value of your vehicle is greater than the residual value (the value of your vehicle at the end of the leasing period, as predetermined by your agreement). More often than not, however, the decision is not as clear cut as comparing these two numbers.
Leasing contracts include clauses that impose fees on drivers who return the car in a condition worse than agreed upon. If your vehicle has taken wear-and-tear greater than would occur from normal usage (both interior and exterior), or if the mileage on your vehicle ended up being greater than the amount stipulated in lease agreement, purchasing the vehicle might save you from hefty penalizations.
If you decide to purchase your leased vehicle, it pays to do your homework, and to be patient. Contacting your leasing company too soon can take away from your bargaining power by suggesting either eagerness, or a desire to avoid the previously mentioned fees. You also want to take extra time to look into alternative actions, in the event that you can’t get an acceptable deal on your purchase.
Most leasing agreements are closed-end, meaning the residual value has already been determined by a contract. That leaves the wholesale value and retail value as variables. Upon the end of a leasing agreement, vehicles are sold at auctions to dealerships, which is its wholesale value. The retail value of a vehicle is how much it gets sold for is commonly found by consulting the Kelley Blue Book. Knowing these figures will give you a better understanding of the value of your vehicle, and might even open up possibilities you had never considered before. A relatively low residual value combined with a high retail value suggests that you might simply buy your leased vehicle, and sell it immediately for a profit!
Knowing the different valuations of your vehicle is the key to making a truly informed decision. Leasing companies typically lose money when selling at auctions, an advantage that you may be able to use to get a good deal. Remember that good research includes looking at all possible alternatives, not just your preferred course of action.