Easy to Follow Guide to Your End of Lease Options

Lease Advice


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On the Car Pro Show, we always get a lot of calls about what to do at the end of a car lease. To help you figure out whatís best for you, I recently put together some easy to understand tips on what to do at the end of a lease.

Start Your Research About 90 Days Before Your Lease Is Up

As you approach the end of a lease, at about 90 days from the end, that is the time to get your lease contract out and look it over. Odds are you havenít looked at it in a long time. Look for the residual value, sometimes called the lease-end value. This is one of two very important numbers you need. The residual value is the amount you can purchase the vehicle for at the end of a lease, and that number is set in stone. Although you may have no intentions of buying your leased vehicle, you still need to know this number to determine if you have equity.

You Only Have Three Options at Lease End

Equity? Every time I mention you could have equity in a leased vehicle, people are amazed and confused. Those who got into the habit of turning in their old keys and getting a new lease often never check for equity. At the end of a lease, you have three options:

#1.
Walk away from the lease: Youíll owe a disposition fee, mileage charges if applicable, and any wear and tear charges.

#2.
Trade the vehicle in: You can trade it in anywhere for any make and model you wish, you are not tied to the dealer you leased from. By trading, you avoid the disposition fee, mileage charges, and wear and tear.

#3.
Purchase the vehicle: You have the first right of refusal to purchase your leased vehicle for the residual value. If you do not purchase it, the dealership has the next opportunity, and if it does not purchase it, the lease company gets it back and sends it to auction. Like trading your vehicle in, if you purchase your leased car, there are no fees or charging, unless you are in Texas, which charges sales tax on the purchase of your leased car.

Find Out The True Value Of Your Leased Car

The second important number you need is a true value. Unfortunately, finding a true value is not easy to do, and it is impossible to do online. None of the trade-in values online are accurate, especially on vehicles that are only 2-3 years old. The values online are often too high, but I see many cases where the values are extremely low. Either case can skew your decision-making process at the end of a lease. If youíve listened to my radio show for any amount of time, youíve heard me say ďa car is only worth what someone is willing to write a check forĒ. The P.S. to that is Kelly Blue Book, Edmunds, and the others donít write checks.

So how do you actually find out what your leased car is worth? You get an offer from a dealer. It can be a new car dealership, every one of them buys cars, but the trick is talking to the used car manager. If you talk to a salesperson, youíll end up getting a trade allowance, which can be manipulated. When you speak to the used car manager, just ask him should you decide to sell it, what would he pay for it?

In most markets, there are large used car dealers who advertise they want to buy cars and have an easy process for making you an offer. CarMax is the largest in the country, but there are many others who pay top dollar.

I Have The Two Important Numbers Ė Now What?

Now that we have the two important numbers (the residual value and the true value) it is decision time to figure out which of the three options above is the smartest. Letís use three examples:

#1.
You found a dealer ready to write a check for $20,000 for your leased car. The residual value is $18,000. You have $2000 in true equity that belongs to you. You can trade the car in and use the $2000 to reduce the next payment, whether you buy or lease, or you can take your leased car to the dealership that was high bidder, it will pay it off and write you a check for $2000 that you can do with as you wish. Remember, in both these scenarios, you owe nothing further to the lease company.

#2.
The opposite numbers apply. The residual value is $20,000 and the best offer youíve gotten is $18,000. This is when we walk away. Factor in the disposition fees, wear and tear, and any mileage charges.

#3.
The real value and the residual value are the same, both $18,000, for instance. Then youíll want to trade the car or sell it to a dealer to avoid the end of lease charges.

If you love your leased car and just donít want to part with it, thatís OK, but you still want to go through finding the true value. There is no reason to way overpay for your own car. I think it is reasonable to pay a little more for your own car since you know the history of it.

In Conclusion

Iíve told the story on the air several times, but a personal friend of mine who is on a cycle of leasing was about to walk away from a low mileage Cadillac Escalade. She was just going to turn the Cadillac in where she leased it, and then lease an Infiniti. I made her go through the process above, and she had $9000 in equity she pocketed.

Will everyone have equity? No, there are many factors including what is going on in your market. For instance, cars coming off lease in South Texas right now are bringing huge money due to the hurricane (assuming your lease car was not flooded). There will be a ton of leases ending there soon with equity. Discontinued cars will not often provide equity, and convertibles in the dead of winter probably will not have equity. Every case is different.

No matter what kind of vehicle you have, or where you are located, you should want to know where you stand before ending your lease.
Ralph
Bank in June 2016 I leased a 2016 Dodge RAM 1500. My lease is up in June 2019, however, I am currently 16,500 miles over the allowable miles. My life has changed a bit and i didn't foresee the extra mileage. The residual value of the car was set at around $28,000 (22,500 max allowable miles) however, the true value of the truck is around $22,000 at best. I really would love to get out of this lease, however, I am just worried about all the extra fees that I will incur by doing so. The vehicle was bought from a Dodge delaer, however, the financing company is a third-party. What do you suggest that i do? I will need another car to replace this one. Thank you.
Amy P.
If you like the Ram, just purchase at the end of the lease and you won't be subject to the mileage or wear and tear fees. Otherwise, you'll need to come up with a bunch of cash to walk away. I think that is your cheapest way out.

Jerry Reynolds
Orlando
Just to clarify, the residual value on the lease contract is NOT necessarily set in stone. If you speak with someone at the dealership, they'll tell you that it is. If you contact the leasing company, they would rather sell it to you for more than they'd get at auction; which may be less than the residual value. It's worth the call. Good luck to all.
Amy P.
I won't say you are wrong, but in 35 years in the business, I've never seen it. With the old open ended leases, that was true, but none of the OEM finance companies even offer those.

Thanks for listening.

Jerry
.
We are seniors at the end of a 3 yr. lease on a 2016 Kia Forte with 19K mi on the allowable 30K. It is in great shape with no issues and we are trying to determine if we have an equity position.
What reassurance do we have that a used care mgr. will provide the actual "true value"a
Thank you
Amy P.
Good to hear from you. You should get several opinions of the CASH VALUE amount to determine a good median range. If you have a Carmax in your town, they do a good job with their free cash offers.

If you haven't read my leasing section at my FAQ page, you should do so. I think it will help you.
https://www.carprousa.com/factory-incentives-guide.php

Jerry
Vicki
I have a fully loaded RX 350 with a 36 mo lease up the end of May. I only have 22,000 miles and the buy out is $34,643. I was planning on purchasing the car as I am retiring but was in an accident about 2 years ago which resulted in about $15,000 worth of body damage. There was no frame damage or anything else.

I know the dealer will not keep the car and they said at the lease inception that the buy price out is non-negotiable. I live in the Los Angeles area and the bodywork was done by one of the best body shops and they have given me a lifetime warranty. Is there any way to negotiate with the dealer? I am sure they will send it to auction. Is there anyway to offer x% over what they would get there? Any suggestions?

Thanks! Vicki
Amy P.

Vicki, the dealer has nothing to do with the buy out price, that is set by Lexus Financial, and it's set in stone. I would not recommend buying this vehicle due to the accident, that's the beauty part of a lease. Although the repairs seem fine now, often they don't show up for years.

Talk to my friend Matt the GM at Lexus Santa Monica. You can buy a Certified RX from him that has not been damaged, or lease a new one, he's a great guy: https://www.carprousa.com/dealers/losangeles/Lexus

Jerry Reynolds
CarProUSA
.
How go you find the residual value of your leased car?
Thanks, Glenda Salter
Amy P.
Hi Glenda!

You should be able to find that here in Jerry's list of leasing terms to know. Let us know if you need more information.
Thanks for writing!

https://www.carprousa.com/8-Car-Leasing-Terms-To-Know-Before-You-Visit-The-Dealership/a/518
chasen
My 36 month lease with Subaru allows me to continue making lease payments for at least six months at the end of my 36. Is that a good idea or is it better to just go ahead and lease another car? What about turning the car in a few months early, if there is good equity?
Amy P.
If there is good equity now, Iíd do it now. Things can change quickly, so Iíd pull the trigger if indeed the equity is there.

I hope this helps.

Jerry Reynolds