Should I Buy My Leased Car? – Advantages
Leasing is a great way to drive a more expensive car than you might be able to afford to buy. And leasing has other advantages too. In this blog we look at the advantages of leasing and how leasing can be a great option for those who want to drive more car than they can afford to buy.
One of the advantages of leasing is the opportunity to drive more car than you afford to buy. After all, you can get more car for less money with a lease because you only pay for what you use during the lease.
Let’s say you lease a $50,000 car over a period of three years. The terms say if the car is driven 36,000 miles or less (the mileage cap) and maintained in a certain condition, the car will be worth $20,000 (the residual value) at the end of the lease. Thus, the total of your payments come to $30,000. You’ll get to drive a $50,000 car for three years—for only $30,000!
And, if you’d like, you can buy the car when the lease is done.
Which begs the question; should you buy your leased car when the lease ends?
Well, it depends.
First of all, you’ll never find a pre-owned car with which you can be more familiar. You’ll know its exact maintenance history, plus how it’s been driven, and where. When it comes to buying a used car, there really is no better situation.
Keep in mind though, unless you pay cash, it’ll cost more than $20,000. If you take out a loan, you’ll pay interest. Further, let’s say the loan is for three years at $600 a month. You can easily find a new car to lease for $600 a month (assuming you have the down payment to start a new lease).
Another consideration is the actual value of the car at the end of the lease, as opposed to the projected residual. Let’s say the car depreciated at the rate of $15,000 a year instead of $10,000. The residual is still $20,000, but the car is only worth $5000.
Here, you’re definitely in the no-buy zone.
On the other hand though, if it depreciates less than expected, you’ll drive the car at a discount for three years and you’ll get to buy it at a discount after having done so.
But wait, there’s more.
Let’s say you exceed your mileage cap—in other words, you drove more miles than you agreed to. You’ll have to pay for the extra value of the car you depleted. This is usually expressed in so many cents per mile. Depending upon the amount, it might work out to be cheaper to buy the car than pay the penalty. Similarly, if the car shows excessive wear and tear, you’ll also have to pay. This is another case where it might be cheaper to buy the car than pay the fees.
If you do decide to keep it, the process is pretty straightforward. When you’re down to the last two or three lease payments, tell your leasing company you want to keep the car and you’d like to negotiate a purchase price for the buyout.
Yes, negotiate a purchase price.
After all, the leasing company will have to sell the car to somebody if you don’t buy it. This generally means a wholesaler, and a wholesaler probably isn’t going to give them $20,000. So try to work out a better price. Make sure you’re talking to somebody who has the authority to make a deal, and make sure you take all of the fees, taxes, and registration into consideration when you make your offer.
If it all works out, you could get the best used car deal of your life.