Quick Tips About End of Car Lease Options
- Returning the car at lease-end is the typical choice for most lessees.
- End-of-lease options include buying the car for the predetermined residual value.
- The lease buyout option isn’t a good choice if the car’s residual value exceeds the market value.
- Extending the lease for a few months might be an option if you need more time to find another vehicle.
The leasing share of new-vehicle sales declined rapidly and consistently from its peak of almost 34% in February 2019. Still, about 1-in-4 of the new cars driven off dealership lots three years ago were leased, and a couple million of them will be returned when the leases mature in 2024.
Read on to learn about end-of-lease alternatives to consider, including the potential benefits of buying your car at the end of leasing.
Factors to Consider at the End of Lease
Is your vehicle lease ending soon? If so, you have a lot to consider. New car inventory is up from 2023 levels but still low by historical standards. At the same time, Kelley Blue Book data shows the average transaction price for new cars was $48,510 in April, a 2.2% increase over March but down about 2% from the December 2022 record high. Meanwhile, car shoppers must contend with economic headwinds and higher interest rates on car loans.
Car Depreciation and Residual Value
With a lease, you make monthly payments for a contracted number of months. Instead of paying down a loan and building equity, you are paying for the car’s estimated lost value (depreciation) during the term (length) of the lease.
After factoring in depreciation, the car’s residual value remains. It’s the estimated amount the vehicle is worth at the end of the lease. In other words, it’s the buyout price and what you’ll pay if you decide to purchase the car when the lease terminates.
The residual value is calculated in your contract as a portion of the car’s MSRP (manufacturer’s suggested retail price). Whether it’s a percentage or a specific dollar amount for the purchase option, it’s important to note that the financial institution holding the contract estimates the residual value at the beginning of the lease.
What Is the Residual Value of My Leased Car?
At the beginning of your lease, the leasing company estimates the car’s market value when the contract ends. This amount is called the residual value, which you can find in your lease paperwork.
RELATED: Is Now the Time to Buy, Sell, or Trade-in a Car?
Lease Buyout Price vs. Market Value
If your lease is about to terminate, crunch some numbers. Use our car value calculator to see a range of what you might get for your vehicle. However small, depending on how your financial institution calculated your car’s residual value, the car you leased in 2021 may have a lower residual value than the current market value for that model.
There might be room for negotiation if the dealer needs your vehicle in stock. A lack of some used models pushes used car prices higher.
So, consider the purchase option if you like the car you’ve been driving and if it hasn’t given you problems for the past two or three years. You might be able to buy it for significantly less money than a comparable model would cost if you found a car for sale.
What to do at the end of a car lease depends on several factors and your unique situation. However, one thing is absolute: The buyout option isn’t a good choice if the car’s residual value is higher than the market value at the end of the lease.
Can I Get a Loan to Purchase My Car When the Lease Ends?
You’ll save on interest charges if you can pay cash for the car when the lease ends. If you need to finance the purchase, shop around for the best rates and get pre-approved before talking to the dealer about buying your off-lease car.
Can I Sell My Leased Car?
You do not own the car you are leasing. Most lease drivers often return the car, but you have several end-of-lease options. You can buy out the lease before the contract ends or purchase the vehicle at the end of leasing. Then, you can sell the car once you own it. Used cars in today’s market command higher prices than a year ago, so you might profit from the sale depending on the leased car’s residual value.
Drawbacks to Purchasing Car and Selling for Profit
If you use the buyout option to purchase the leased vehicle, you may be able to sell it to another individual for a profit. It might be worth your effort if the money is significant. The legwork discourages some people from doing a peer-to-peer sale, but using our Private Seller Exchange to sell your car reaches millions of buyers, and we take care of the paperwork.
Car Availability Can Still Be Scarce
What will you do for your next set of wheels if you return the leased car or purchase it to resell? Remember that vehicle inventory can be spotty for specific trim levels with the options and the color you want. Many buyers turn to factory orders to get the model equipped with the desired features.
However, inventory levels have reached the point where incentives are returning. Manufacturers typically subsidize sales promotions and leasing specials to help move slower-selling models. During the past two years of lighter inventory and increased demand, vehicles of all types moved off dealer lots quickly without incentives. You might find a good lease deal in today’s market, but locating the exact model you want can be challenging.
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Editor’s Note: This article has been updated since its initial publication.
