What Are Your Lease End Options?

The end of your car lease, more generally known as the maturity date, is a time when you have to make an important decision. The decision isn’t so big if leasing cars has become the norm for you. Regardless, you have two choices when it comes to the end of your lease.

1. Return the car to the dealer. This is probably the more common decision that lessee’s make. You simply return the car to the dealer you leased it from, or you return it to another dealer who sells the same make and model of your vehicle. There is no pressure for you to lease or purchase another car, but most people end up returning the car and leasing or purchasing a different car that they like. Keep in mind that if you plan on returning the car to the dealer, you are required to schedule an inspection for your car. During the inspection, the inspector will take a look at the body and mechanical condition of your car to check for excessive damage or wear and tear. If the inspector finds that there are excessive mechanical defects or bodily damage, he will take note of this in the vehicle inspection report and you’ll end up being charged for those defects/damages. Generally, you don’t have to worry about any charges if:

a. You kept up with the maintenance of your car.
b. You did not severely damage the body of your car.
c. Your lease agreement provides an excessive wear and use waiver.

2. Buy the car at the agreed upon purchase price.
The purchase price of the car is typically its adjusted residual value. This means that the dealer has artificially raised the residual value set by the finance company because you are presumably only going to drive a certain number of miles per year. For example, if your lease agreement states that you are given an allowance of 12,000 miles per year for a 36-month lease, your car will presumably have a mileage that is less than or equal to 36,000 miles. This low mileage raises the value of the car. So generally, you can expect the purchase price to be a couple percent or so higher than the residual values listed on sites like Kelly Blue Book or Edmunds.

Should you purchase your car at the end of the lease? I most likely wouldn’t purchase the car at the end of the lease, but there is one specific situation which could make this a profitable choice for you. What gives you the potential to make money is the fact that the residual value, which is set by the finance company, is simply an estimate of the value of the car after a specific number of years. At the end of your lease, this estimate may or may not correspond to the actual value of your car. The car could be worth more than the residual value or it can be worth less than the residual value. If you find that your car has a value that is significantly higher than the purchase price, it would be a smart move to pay off the car and resell it for profit. This would require you or someone you know to have very high confidence in their ability to sell the car to someone at a price that exceeds the payoff amount.