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 $50,000, up from roughly $38,000 in 2020—the residual value of your leased car may be worth more than it would cost it if you bought it used. There’s a quick way to know if your sitting on a solid asset: check the buy-out price in your lease contract, then, head to Cars.com or KBB.com and price compare your car (make, model, year, trim, mileage and condition) to see what it would cost new. There are still other things to consider, so keep reading.
This story is 100% human-researched and written based on actual first-person knowledge, extensive experience and expertise on the subject of cars and trucks.
Buying Out Your Lease May Be Your Best Deal—Even If It’s Not Cheaper
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. By exercising that option, you can skip paying for excess mileage on the car, wear and tear and turn-in fees. So there’s savings up front unless your leased car is pristine. You can find that preset price, as well as any taxes owed on a lease buy-out, in your original lease agreement.
And, your just-off-lease car may be worth a lot more than you think. Dig a little deeper on that research; what is that car selling for at car dealers near you? Also look at its depreciation rates for the next few years to see what this asset might be worth in the next few years if you decide to sell it; if it continues to lose value quickly it may not be worth keeping. Then, look at expected maintenance costs and any other investments you’ll need to make—brakes, tires, oil changes—as well as cost of operation (gas, insurance and interest on a loan) and sales tax on the lease buy-out to come up with a total cost of ownership.
Do the same math on the cost of buying or leasing a new car—Leasehackr has a nice calculator. This is where you’ll see the true value of buying out your lease—or not.
Related: Used Car Buying Tips: What You Need To Know
Why To Buy Out Your Lease Even If You’re Buying a New Car
The hot car market is pushing more and more car buyers into used cars, giving car dealers even more incentive to buy used cars. So before simply handing back the keys and paying the fees on your lease, if it’s worth more than your buy-out price, ask the dealer you’re buying a new car from to manage the lease buy-out for you; some can, and some cannot. If they can’t, take it to dealer of the same brand and ask them to manage the buy-out for you; this will let them cut you a check for the equity.
You might see the better upside, though, if a dealer can manage the lease buy-out for you and then sell you a new car; they are able to avoid charging sales tax on the purchase because they are buying it “wholesale” which isn’t taxed.
If none of this works for you and you just want to keep or sell the car, you can always buy it directly with cash or take out an auto loan.
“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).”
Is Another New Car Lease the Right Way to Go?
Even if you’re thinking of another car lease, do the math separately on your lease buy-out to see if you’ll benefit. Of course the dealer would love to have the windfall of your under-market car, so you might be better off using the buy-out price as leverage on a lease downpayment, interest rate or price reduction.
Lease payments are typically attractive because the monthly payment can be much lower than a loan payment. “The money factor, which is the leasing equivalent of an interest rate, equates to 6 or 7% in many cases,” said LeeAnn Shattuck, The Car Chick. However, with high interest rates on car loans “combined with the higher prices of cars right now” lenders are competitive and many lesees will find lower interest rates manufacturer incentives and other deals on new car leases and purchases.
Related: Ask the Car Chick: Buying vs. Leasing: What’s Right for Me?
Buying or Selling, It’s Important To Understand All the Details
There are upsides and downsides to buying out a lease and many of them are subject to marketplace and economic forces beyond our control. If your lease buy-out is a lot more than you’d pay for the car new, then of course, give it back and consider yourself lucky. But if it offers any value at all, it’s worth understanding that clearly. To best understand what you stand to gain or owe, read your lease contract carefully. Then do the buy/trade math.
Understanding these specifics are important to negotiating your next car; these are complicated transactions, so understanding what the dealer is offering is important to getting a fair deal. And if anything doesn’t add up, question it. I did this once and was correct; the dealership had to rip up and re-write the paperwork on my purchase three times because they kept making mistakes.
It can get complicated, LeeAnn said. To complete a transaction for a client she had to “sell her leased electric Volkswagen Golf to a VW dealership,” Shattuck said, then negotiate a separate lease with another dealer. “We’re still making it work,” she said, “but we have to do it in two separate transactions,” she said. But it was worth it; her client made 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.”
