I hear daily from people who are coming up to the end of an automobile lease and just simply do not know what to do. This can be a confusing time for many and many do not know what their options are, or even how to start the process. I am going to give you some good tips on how best to figure this out.
Step one is to understand your options.
With most leases, you can purchase the car for the residual value that is on the contract. That number is set in stone. Or, you can use the walk- away option, which allows you to turn the keys over for a small termination fee plus any normal wear and tear. Or lastly, you can trade the car in to avoid the walk-away option.
Before any decisions are made, you really need to know where you stand in the vehicle. By that, I mean what is the true value of the leased vehicle versus what you will owe on it at lease end. Many people never take the time to find out this information and lose equity that could be used for the next vehicle.
I often recommend you run your car by a good dealership to find out what their cash offer would be. Looking at the online websites will not be of much help, they are generally way off on values, either high or low. As I always say, a car is only worth what someone is willing to write a check for. Finding out the true value should be the deciding factor in your decision on how to proceed.
If the car’s true value is equal to or exceeds the residual value, then you will want to use the leased vehicle as a trade-in.
This keeps you from paying the termination fee and eliminates any wear and tear charges. It also makes it much easier and less time consuming for you.
If the true value is lower than you would have to pay for the car, then you’ll want to exercise your right to walk away from the car. In this case, you would have to pay the termination fee. Your lease company will arrange for an inspection in advance to get details on any wear and tear they find. You will always want to get these things fixed prior to turning the car in. You can do the repairs for a lot less than they will charge normally.
If you have thoughts of buying the car yourself, and a lot of people do, this is another reason to get a true value on the vehicle. You don’t want to over-pay for your own car, you have paid for this car for probably three years or more, so to overpay now is a tragedy. If you are only paying slightly more than the value, it is probably worth it just to know the history of the car, but to grossly overpay for your own car defeats one of the real benefits of leasing.
Check with your dealer at lease-end to see if there are any special incentives for returning lease customers, this is not uncommon. The manufacturers want to keep you in one of their products, so many times they will give you compelling reasons to stay with them, and they know when you are forced to make a decision.
Timing-wise, you want to start looking at options between 30 and 60 days before the end of the lease on the old car.
This will give you plenty of time to make a good decision on how to best dispose of the leased vehicle and what to replace it with.
For those that have leased in the past and are used to just turning their car in at lease-end, do yourself a favor and get a true value. Numerous times in the past couple of months, I have helped people realize they had as much as $5000 in equity they would have lost if they had simply turned their car back in. If there is equity in your lease, you sure don’t want to give it away.