When The Car Lease Is Over

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Almost one in every three new-car buyers leases a new car, truck or SUV. If your car lease is ending, carefully considering your options at lease end could save you money, reports Personal Finance Adviser Ray Martin for The Saturday Early Show.

With new car sales slumping as the economy slows, beleaguered auto-makers and dealers may be more willing to consider options to slow the flow of leased cars that are returning to their lots.

The pace of new car sales in the U.S. is about 15.5 million each year. Some simple math concludes that if 30 percent of all new auto buyers lease a vehicle, then about 300,000 to 400,000 auto leases come to an end each month.

At the end of the lease, you have the option of buying the vehicle, trading it in for another, or returning it.

If you choose to buy it:

  • You'll pay the residual value printed on your lease contract, regardless of the actual value.

  • Generally, the vehicle's actual value can be higher or lower than the residual value, depending upon how well your vehicle's resale value has held up. You can research an estimate of your vehicle's actual value.
Not all residual values are created equal. If your lease was provided through a captive leasing company (a financial company that provides leases for certain auto manufacturers), or on a model that was promoted with special sales incentives, the residual value stated in the lease contract is almost always subsidized, or set above the car's expected actual value at lease end. This is done to reduce monthly lease payments as an incentive to get buyers to lease certain models.

If your car's actual value is below its residual value, turning it in at the end of the lease is almost always your best option.

If your lease was through a bank or for a popular vehicle for which no sales incentive was offered, the residual value in the lease contract could be close to or even less than the actual value of the vehicle. In this situation, consider several options:

  • Save on financing. Many leasing companies will guarantee financing at the lowest interest rate available at the time your lease ends.

  • Save on insurance. You'll be able to save on your auto insurance by reducing coverage, because lease contracts typically require high limits for liability, comprehensive and collision coverage, and lower deductibles.

    Also, many leases require you to carry additional gap insurance coverage (covering the remaining payments on the lease if the vehicle is totaled). Insurance premiums saved by reducing coverage can range from $100 to $700 per year, depending on the make, model and driving record of the individual.

    Leased vehicles are typically in good shape since you are the only owner and most lease deals come with regular and scheduled maintenance programs.

  • Use the equity in the car as leverage in a new deal with the dealer. A well-maintained, low-mileage lease car wih an actual value in excess of its residual value might allow the dealer to knock up to a couple of thousand bucks off your next deal. Also, remember to get a credit for your lease deposit towards the price of the new vehicle.

  • Sell the car and pay off the residual value to the leasing company, pocketing whatever profits you make. Of course, you'll have to deal with the time and hassle of selling the car yourself but sites like Kelley Blue Book provide helpful resources, including a Suggested Retail Value Report that you can print and display in the vehicle's window.
Banks almost exclusively send cars returned to them to wholesale automobile auctions for disposal back into the used auto market. By doing this, they incur a time delay in getting their money from the sale and the cost of an auction commission.

For this reason, you may be successful in negotiating when offering to buy the vehicle from the bank at the end of the lease. Banks may offer to reduce the residual price to below the actual value by 3 to 10 percent, offer a below-market interest rate on financing, or a combination of the two.

Faced with a rising inventory of vehicles on their lots and slumping sales, dealers also may be in a bargaining mood. They may be willing to sell the vehicle below the residual price, extend the warranty, throw in a new set of tires, or a combination of these.

Walking Away:

  • If the actual value is significantly below the residual value or you simply want another vehicle, you can return the car to the dealer and walk away from it.

  • Read your lease contract carefully to determine any applicable charges such as termination fees, wear-and-tear repairs, or excessive mileage charges.

  • Shop around your local auto body shops for minor body and paint repairs; this will usually be less expensive than what the dealer will charge.

  • Also, if you are required to buy new tires, buying them from a major tire distributor will typically save you money versus buying them from the dealer.


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  • CBSNews.com staff CBSNews.com staff

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