Autotrader: Why you should buy your leased car

This post was originally published on this site

With only a couple of months left on your lease, time is running out to decide if buying your leased car makes more sense than turning it in.

Leasing is an entirely different ballgame than purchasing a car. Ultimately, you are renting the car from its owner—the leasing company—and are responsible for its condition at the end of the lease term. It’s not your car to do with as you please. You must choose between handing the car back to its rightful owner or negotiating a deal to buy. If you return the car, it will likely be sold as a certified preowned unit after a thorough inspection.

If the car is in good shape and you have managed to keep the miles driven within the limits spelled out in the lease, you can pretty much just hand over the keys and walk away. If not, you will probably get dinged with extra charges and penalties that may exceed whatever deposit you put down up front.

There is a lot to think about as your lease draws to its close. It is likely the leasing company will contact you 30 to 60 days before the lease expires with offers for leasing something else, as well as to get a sense of where you are in the decision-making process.

Also read: Trump revokes California’s right to set its own emissions standards for automobiles

This isn’t a decision you should make while you are on that phone call. Leasing is complex; ending a lease to your advantage requires some research and thought.

Here are five reasons for buying your leased car at the end of the lease:

1. Price to buy is less than market value

Estimating what a car will be worth 24 to 48 months down the road is more of an art than a science. But that number—commonly called the residual value—is what the leasing company uses to set a monthly lease payment. In simple terms, the new-car sale price minus the residual value divided by the number of months in the lease equals the monthly payment. If the leasing company guesses wrong and sets the residual value too high, the monthly payments are lower than they should be. If the residual value is set too low, you can buy the car for less than it’s worth at lease end. Moreover, leasing companies have to resell their returned cars either directly to a dealer or through an auction. Often they will negotiate a buyout price that’s more favorable to you to avoid that hassle and expense.

2. The car is in great shape

You’ve done everything right while this car was in your care. You’ve maintained it to the manufacturer’s specifications, you’ve driven it responsibly and kept its sheet metal unblemished and its interior spotless. There is not another used car on the market that you can have more confidence in than the one you’ve been driving for the last 24 to 48 months. If you still love this car as much at the end of the lease as you did on the day you picked it out, keeping it may be the smart move.

3. The car is in terrible shape

Buying your leased car if it’s in great shape seems logical, but why would you keep it if it’s in bad shape? If you’ve been driving it like you stole it, your leased car probably shows the scars of your road warrior behavior. If there is excess wear and tear on the car, the leasing company will penalize you. The greater the damage, the larger the penalty. And guess what? Those little dents, dings and scratches you don’t think are significant will be viewed very differently by the leasing company. One way to avoid those lease-end penalties and charges is to buy the car.

4. Excess mileage

The leasing company estimated what the car would be worth at the end of the lease, stating it as the residual value. Estimating residual value includes setting a limit on the number of miles the car can be driven. Often this limit is 12,000 miles a year, but it varies. That means over a 3-year lease, the maximum number of miles would be 36,000. If you exceed that number, the leasing company will charge you for every extra mile driven. The per-mile penalty is spelled out in your lease, but it can run as high as $0.25 per mile. That would be $250 for every 1,000 miles over the limit. You will dodge these penalties by purchasing the car.

You might like: Kevin O’Leary is right about cars, and his logic might save your retirement

5. To avoid the hassle of car shopping

Let’s face it, shopping for a car takes a lot of time and energy. Buying your leased car can save several weekends on car lots and most of the frustration that comes with the process. You will still need to do a little research and negotiating, but much less than starting the process from scratch.

This story originally ran on