If you’re at the end of your car’s lease, you may be wondering if you should buy the vehicle.
In this article, we’ll look at the three times money expert Clark Howard says buying out your lease can make sense.
Should I Buy My Leased Car? Here’s What You Need to Know
When you’re at the end of your car’s lease, you’re at a crossroads.
You can turn in the vehicle and jump into a new leased ride. But by doing that, you also jump on a treadmill of always leasing and never owning.
Another possible option is to turn in the leased vehicle and shop for a new or used car for sale. Buying a reliable used car is Clark’s recommendation.
The final option is to buy out your vehicle for its residual value. The residual value is how much you’ll pay to buy the vehicle at the end of the lease. It should be spelled out in your lease contract.
Clark says doing a lease buyout and paying that residual makes the most sense in very few cases. Here they are:
Case 1: You’re Over Your Mileage Allowance
To begin with, let’s look at the first situation of exceeding your mileage allowance.
Vehicle lease agreements come with mileage allowances: the number of miles you’re allowed to drive while you’re leasing it. And there are penalties for going above your mileage allowance.
For example, if you drive 15,000+ miles annually and your lease allows for only 12,000 miles each year, you’re going to have to fork over extra cash to pay for the difference.
It’s not uncommon to pay 20 cents per mile when you go over your mileage allowance, according to Clark. So in this example, you’d be responsible for an extra $600 annually, or $50 monthly.
If you’re facing a huge penalty for exceeding your mileage allowance when you turn your vehicle back in, you should consider buying your leased car.
Case 2: You’re Under Your Mileage Allowance
If you’re way under your mileage allowance, you should also consider buying the car.
“You’re leaving money on the table that you essentially already paid for under the terms of the lease you agreed to,” the consumer champ says.
Case 3: The Residual Just Makes Sense
A third circumstance when buying out your lease can make sense is if you really like the car and the residual is within reason for the vehicle’s value. You can check vehicle values at Edmunds.com, KBB.com and NADA.com.
“Then it makes a lot of sense to buy the vehicle,” Clark says. “You know the vehicle’s history, you’ve been the driver and you know how it’s performed. So, you eliminate a lot of the unknowns you would have with most used vehicles.”
You can also check out this end-of-lease calculator to help you decide.
Of course, numbers alone don’t tell the whole story. You have to like the vehicle if you’re thinking about owning it after your lease ends!
“If you hated your ride, regardless of the economics, you don’t want to go forward with a buyout at the end of the lease,” the money expert notes.
Negotiating a Lower Lease Buyout Price
You may find you have negotiating power when it comes time to pony up for the residual value, depending on who financed the lease.
If the lease was done by a bank, Clark says you can probably negotiate a discount on the residual price. The banks don’t want the off-lease vehicles back. After all, they’re not in the used car business.
But if you got your lease through one of the automakers’ captive finance companies (Honda Financial Services, Toyota Financial Services, Ford Motor Credit Company, etc.), you probably won’t have any wiggle room on price.
Leasing is not for everyone. In fact, there are only a couple of circumstances in which Clark recommends leasing.
Instead, consider buying a used vehicle that’s two or three years old, and then keep it for at least three years. We’ve got a guide to buying used cars here.