If you looked at your calendar and found that the end of your car lease is quickly approaching, you have a choice to make. Do you go with a new lease, hand in the car and buy a new one, or do you simply buy out the car you're leasing? Before making the big decision, you should consider the condition and mileage of the vehicle, its value, and how much your leasing company is willing to negotiate.
Condition and Mileage
One set of criteria to consider is the condition of the vehicle and the miles that you put on it. Most leases come with strict mileage limits and stipulations for the condition of the returned vehicle. If you had a little too much fun with the car and it now has some damage or a few thousand miles too many, you'll be stuck paying penalties when you hand it in.
Excessive wear and tear will be noted in the final inspection of the vehicle and issues with exterior body panels, glass, headlamps, wheels, tires, interior, and the engine will be flagged. If you don't get the car fixed before your lease is up, expect to be charged. In certain cases, it may work to your benefit to purchase the damaged car instead of forking up the fees. This will let you spread out the costs to fix it up over time if you choose.
When it comes to the mileage limits, unless you go with a high mileage lease that comes with 20,000 miles per year, an average lease will include 12,000 miles annually. Fees for surpassing the limit can range from 10 cents to 25 cents per mile. If you didn't anticipate the number of miles you'd be driving and have surpassed the limit by a substantial amount, you may be better off purchasing the vehicle. By buying the car, you can avoid all penalties related to the condition and mile overages.
Residual and Market Value
If you've kept the car in great shape over the course of your lease, the ball will be in your court when it comes time to hand it in or buy it out. Say you are happy with the vehicle and you aren't looking to upgrade to a newer model. Since you were the only driver, you'll have confidence in the value you're getting for your money. But does buying make financial sense? It depends on your car's market value compared to its residual value.
When the leasing company determines the residual value of the vehicle, they have to estimate how much the car will be worth at the end of the lease. There is no way for them to predict exactly how much the vehicle will be worth two or more years down the road, and sometimes this unpredictability can work in your favor.
The leasing company will set a monthly lease payment based on the residual value of the car. They take the price of the new car, deduct the estimated residual value and then divide that amount by the number of months in the lease. If your leasing company sets the residual value too low at the start of your lease, you'll have a chance to buy out the car for less than its market value. The best way to determine if you can get a deal is to look up the prices of comparable used vehicles. If you find the residual value to be much higher than market value for the same used car, you can hand in your lease and purchase a new or used car instead.
Negotiating the Car Price
Now that you've looked at the car's condition and its market value to determine that you'd rather buy your leased car, can you negotiate the purchase price? Some leasing companies will happily negotiate, while others may be less flexible. We'll argue that it doesn't hurt to try. After all, you would be saving them the hassle of reselling the car to a dealer or an auction.
Prepare to Negotiate
You'll typically be contacted by the leasing company about 90 days before the end of the lease. Wait for the leasing company to come to you in order to have more negotiating power. Don't make the first move which can reveal you're eager to buy. While you wait, you should research the vehicle's market value (how much similar cars would cost you) and the wholesale value (how much the leasing company can get for the vehicle).
Your Game Plan
Once you get the call from the leasing company, you can negotiate using the information you've found in your research as a tool. If they don't budge on the purchase price, you can ask them to waive the purchase option fee as an alternative. This fee is found in most lease contracts and it dictates the amount you'd pay to buy out the car on top of the purchase price. Still no luck? Ask your leasing company about any other purchase incentives or financing discounts that are available. If you're not happy with their offer, you can just hand the car in, forcing them to resell.