You may be sitting on gold. Don’t let someone else have it.
The one question people ask me again and again—and have been asking me a lot lately—is this: “My car lease is up; what should I get next?”
My answer? BUY YOUR LEASED CAR!
Why? With the run up in prices on new cars – the average price of a new car is nearly $49K, up from roughly $38K in 2020 – it’s probably worth a lot more than the price you’d pay for it if you bought it used. It’s a tough time to buy a new car, but it’s an even worse time to lease.
Here’s why: When you lease a car, your lease contract specifies that you have the right to buy that car at a preset price at the end of the lease. This allows you to buy the car and helps you avoid paying for excess mileage on the car, wear and tear, and turn-in fees.
So your just-off-lease car is most likely worth a lot more than you think. When you leased your car in 2019 or 2020, there was no way anyone could have predicted a pandemic, global supply shortage and record-setting prices for new and used cars. So, the buyout price of that leased vehicle is likely 30%-40% or so below the MSRP when it was new. It’s probably 20% below what it would cost to buy it used right now. Maybe more.
Dealers Are Making Good Offers on Your Leased Car. But is it Really a Good Offer?
This is why dealers are still calling you to bring back or turn in your car early. They are short on inventory. Your car is worth a lot, and they know it. Dealers can make thousands flipping it to the next customer.
“It’s getting really, really ugly behind the scenes,” said LeeAnn Shattuck, car purchase concierge from The Car Chick. “The used car market has turned into the Hunger Games for dealers (and customers).”
Lease payments are typically attractive because they are much lower than loan payments. However, high demand and low inventory are causing lease payments to rise. “The money factor, which is the leasing equivalent of an interest rate, equates to 6 or 7% in many cases,” Shattuck said. Compared to 2%-4% interest rates on car loans and “combined with the higher prices of cars right now anyway, is leading to monthly lease payments being close to normal loan payments. Leasing is not remotely attractive right now for most makes and models.”
In addition to getting a better deal, you can turn around and sell the car for thousands more. This is exactly what the dealership is trying to do.
“Companies like Carvana have been offering insane amounts of money for gently used cars and have been stealing all the good leased cars,” Shattuck explained. “Carvana, Shift, Vroom, CarMax and more are actively recruiting off-lease and used cars to buff up their inventory. Wouldn’t they love to get your car at the buyout price when they would willingly pay thousands more for it? The reality is, you can buy out your leased car, turn around and sell it to them, and walk away with a nice bonus. Perhaps enough for a solid down payment on a new car.”
“I am leasing a Kia Niro plug-in hybrid for one of my California clients, but we’re having to sell her leased electric Volkswagen Golf to a VW dealership,” Shattuck said. Normally, the Kia dealer would take her VW trade-in and do the paperwork for her. Unfortunately, that’s no longer the case. “We’re still making it work, but we have to do it in two separate transactions,” she said. Her client will make about $8,000 by selling her car to the VW dealer. “There are still a lot of tricks that you can use to make good money selling your leased car, but it’s definitely more difficult now than ever before.” It’s important to read your paperwork. Know the value of your car in the current market. Give yourself time to complete the transaction(s).
On the other hand, if you are leasing a car right now, make sure your lease will cover the mileage you need. Keep up with the maintenance, and be prepared for the expense of turning it in. With new car valuations right now, it’s probably NOT going to be a good deal to buy out the lease in 3 years.
Or at least we would guess. But who can predict the future?
Journalist, entrepreneur and mom. Expertise includes new cars, family cars, 3-row SUVs, child passenger car seats and automotive careers ... More about Scotty Reiss
