Your Car Lease is ending and all of a sudden you are inundated with offers of shiny new car leases with prices that happen to be very attractive. Keep leasing or buy?
If you pay close attention you happen to notice that the prices are mentioned in the car lease offers, TV ads are as monthly payments, rarely the entire cost of the car. Wonder why? Well, let's say your mind can wrap around $300/month, harder when it is $40K.
You could lease again, but at the end of 3 years you would have nothing to show for the 3 years of payments. I try to stay away from leases, you are essentially renting the car for 2-3 years. At renewal you will again have to come up with 3-8k plus the monthly payments.
Following our credo, we try not to lease again. We favor a lease buyout, which means buying your car at the end of the lease.
Factors to take into account wether to keep your lease-
-Mileage
-Wear and tear
-Brand
-Trade in value (car worth)
-Residual Value
-Remaining payments
-Wether you like or not the car.
How much is the car worth?
One of the first things to do is go on Kelley Blue Book and find out the trade in value of your car. Trade in value will let you know if the car is worth more or less than the price agreed on signing (Residual Value).
If the car in Kelley Blue Book is less than what is owed then you have to think wether it makes sense to buy, meaning is the car in overall good condition, low mileage/wear and tear etc to keep.
In these days (2022) inflation/supply chains are stretched thin, making car prices sky high, the wait for a new car is outrageous, at times 6-8months is the norm. Keeping your lease is an excellent financial move. You could even later sell your car to carmax and make a small profit.
How much do I owe the leasing company?
How much will you be paying for your car if you decide to keep it? This is called residual value. Go to the original papers you signed, look for a part that says - Residual Value. This is the amount of money you owe should you want to keep the car when your monthly payments are over.
This amount is usually not negotiable. It was negotiable at the beginning of the lease before signing, not now. Add any remaining car payments you may have to this price plus any sales tax associated with it and you have the amount of money you will be paying for your car.
Some dealers charge Dealers fee, see if this applies to you.
Call the leasing company, be aware it might not be the dealer you bought it from. It could be a bank or the car manufacturer itself. Ask them how much the car costs, any sales tax, if they allow third party buyouts. The price spelled in the contract only applies to the person named in the contract.
OK, I want to keep the car, what now?
This is the time for financing. Unless you pay for cash for the car you will need an auto loan or a personal loan for the car.
I am sure the leasing company would like your business, they will offer you financing options, but you should always shop around.
Look around for auto lease buyout lenders. More specifically look at what interest rates they are offering. If you have a good credit history and are a good citizen you should be able to secure a good interest rate. Call your bank, credit union etc and find out.
Just be aware, if you plan on buying the car with the intention of selling it quickly you will need the title of the car in hand, for that to happen either you pay in cash or have a personal loan.
How about warranty?
Warranty is something you should think about. In order to make our decision we first calculated what the average yearly repair cost would be, then went ahead and got it.
Do you have to absolutely get it? No.
Would it be good to have in case some big repair was to happen, you bet. Cars are machines, they will eventually break and need fixing, be Sure to keep this in your estimated costs.
There are usually different types of warranties from basic all the way to Premium.
Should I buy my leased car?
This is a good question. Few things to take into account.
-Condition of the car.
-Are you ok to drive a car for long term.
-Be ready to do routine maintenance, oil change, tire rotation and the occasional breakdown.
Financially speaking it makes sense to buy the car, I will tell you why.
-At the end of the lease you have nothing to show for the 3 years of payments, you will either come out of pocket with a down payment for a car or lease again putting money down.
-Keeping your car means eventually it will be paid off, no more monthly payments.
-Cost will be the routine maintenance.
-When you are ready to get another vehicle you can just sell it to carmax and use that money for a downpayment.
At the end it is better to own your car.
Till next time,
JL
Disclaimer - This blog is meant purely for educational discussion of finances. It contains only general information about financial matters. It is not financial advice, should not be treated as such. The contents of this blog are not medical advice, for medical advice please talk to your medical provider.
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