Your car or truck lease is about to end. For the past few years, you’ve been essentially renting a reliable vehicle. But now, you have a choice to make. Should you get a new lease? Buy the car or truck you have been driving? Just turn it in?
You have four options.
- Trade in – get a new lease,
- Turn your lease in,
- Buy your leased car or truck,
- Sell your leased car or truck.
No. 1: Trade In – Get A New Lease
Odds are good that you leased a car in the first place because you wanted a low monthly payment.
If you purchased an $18,000 car at an interest rate of 4.9 percent, you may expect to pay something like $340 per month for five years. Leasing a similarly priced car could produce lower monthly payments.
In August 2020, Honda, for example, was offering leases ranging from about $250 per month to $270 per month for a 2020 model year Civic LX sedan.
If you are willing to continue to make monthly payments without owning the vehicle, you can simply get a new lease.
There will be some fees associated with the trade in, and you may need to pay for additional miles or repairs.
Getting a new lease can be a good option if your leased car or truck is in great condition and under the allotted mileage.
No. 2: Turn In Your Lease
Simply turning your car in is “probably the single most popular option, and it’s the one fraught with the most surprises,” said Eric Prothro, an automotive industry veterian, in a video about ending your lease well.
“Every single lease has a thing called a disposition fee,” Prothro said. “It might be as low as $395 or it might be as high as $895, but there is a disposition fee. That means just to turn the car in, you pay a fee.”
“Now, heaven forbid you’re over on miles because you signed a contract with 15, 20, 25, 30 cents a mile. So if you’re at 20 cents a mile and you went over 10,000 miles, there’s an additional $2,000 check you’re going to write,” Prothro continued.
Review Your Lease Agreement
Before you simply drive up to the dealership and turn in your leased car or truck, you should probably review your lease agreement.
Do you have a disposition fee as Prothro suggested? What was your mileage allowance? If you’re over on miles, what will you have to pay? Also, are you required to pay for scratches, dents, or any other cosmetic damage?
Frankly, there are going to be lots of times when simply turning in your leased car or truck will make the most financial sense, but you should invest a few minutes to understand if you will have to pay any fees and how much those will be.
If you have taken good care of your leased vehicle and you have not gone over the allotted miles, turning in a lease will not be terribly expensive.
No. 3: Buy Your Leased Car Or Truck
When your lease ends, you are able to simply buy your car or truck. If you have cash, you can pay the residual value and collect the title. If you don’t have cash to invest in the vehicle, you can finance your leased car or truck just like you would finance any used vehicle.
There are, perhaps, two scenarios when buying your leased car or truck can make sense.
The Residual Value is Low
The residual value could be relatively low. In Idaho, for example, three-year-old Toyota Tacoma pickup trucks are in high demand. If you happen to have a lease on a Tacoma, there is a chance that it is worth more than the residual value.
Thus, buying it, even if you have to finance it, might mean that you will pay less than if you bought an identical vehicle used from a dealership.
Turning in Will Be Expensive
A second scenario that makes buying out a lease attractive is when you would have to pay a lot to turn it in.
Let’s imagine your lease has a $895 disposition fee. Plus, you’re 10,000 miles over and have to pay $2,000 for mileage. Oh, and the car needs new tires and has come scrapes and scratches, so you have to put out $1,600 to make these right. Turning in is going to cost you something close to $4,500.
If you don’t have $4,500 handy, you may need to simply finance the residual amount and keep on driving.
No. 4: Sell Your Leased Car Or Truck
You may not realize it, but you can sell your leased car or truck and pay the residual value. This makes sense when the vehicle is worth more than its residual value or when turning in or trading in your lease would force you to spend a lot of money in fees.
Let’s return to the Toyota Tacoma mentioned in the section above. If you had a lease on a Tacoma, and that leased truck had a residual value significantly below its fair market value, it might make good sense to sell it for a profit.
In fact, this is just the sort of vehicle the private party buyer and consignment managers at Maverick Car Company love to get.
There are at least three ways you can sell your leased vehicle.
- Sell it yourself.List the car or truck on Craigslist, Facebook Marketplace, Ebay, Let Go, and similar marketplaces. You will be able to get private party value for the vehicle.
- Sell it to a dealership.Maverick Car Company, Carmax, and many other car dealers will be happy to buy a good car or truck coming off of a lease. Leased vehicles typically have low mileage and will, usually, be about three years old.
- Consign it.You can also have a dealership sell your vehicle for you. In some cases, you will get more for the car or truck, and you don’t have the hassle dealing directly with the buyer. If you’re interested in vehicle consignment, you may want to watch “Will Auto Consignment Work for You?” a Maverick Car Company live stream from May 2020.