My lease is up, so what should I get next?
That’s a hard one. Right now, the new car market is tight and selection can be slim. The used car market is even crazier, with prices up 30% or more compared with the same time last year. The current state of the market is not something analysts and industry insiders could have predicted three years ago.
But for shoppers at the end of a lease, the best deal is sitting in your driveway: your own car.
Why is it Such a Good Deal to Buy Your Leased Car?
When you lease a car, your contract specifies a buy-out price at the end of the lease. That price was preset at the start of the lease, which right was likely three or four years ago—before the pandemic, supply chain issues and chip shortages.
“That buyout price is way under current market value,” said LeeAnn Shattuck, an automotive expert and car-buying “concierge,” known to many as The Car Chick. “So you can buy out your lease and turn around and sell it and make money” Shattuck said. “Or, you can keep it and save money.”
In addition to a great price, you can avoid paying for excess mileage on the car, wear and tear and turn-in fees.
There may be state taxes to face, however. Each state’s rules can vary, so be sure to understand the tax implications before agreeing to sell or swap your leased car. Your car dealer can be helpful as well as they know the rules well.
What is My Leased Car Worth?
The price of the buyout in the original lease contract, which allows lessees first dibs on the purchase of the car one the lease has expired. The car can either be purchased directly from the leaseholder (the bank or finance company) or through a car dealer.
It’s likely the deal will have to be worked out with a same-brand franchised car dealer, but going to the original dealer may not be necessary. For example, if you leased a Toyota in Chicago but moved to Florida in the meantime, just message your local Toyota dealer and ask if they will assist with your lease buyout. It’s possible you’ll need to reach out to few same-brand dealers to find one who will help you.
Your Dealer Wants to Buy Your Leased Car. Is That a Good Deal?
If you call local dealers asking for help with your lease buyout, they may try to persuade you to let them pay you money for your leased car instead. Many people are getting calls from dealers asking to buy their leased cars and some offers sound pretty good. But are they?
Do your research. Find out what price dealers are setting for your car. Look at pricing in your region and around the country to get a good feel of the true value of your car.
Dealers know what you car is worth and many are making very good offers on off-lease cars because they can make thousands flipping it to the next customer. “It’s getting ugly behind the scenes,” Shattuck said. “The used car market has turned into the Hunger Games for dealers (and customers).”
Lease Vs. Buy: Why Leasing May Not Be Such a Good Deal Right Now
The market is so tight that lease payments—typically attractive because they are much lower than loan payments—are creeping up due to high demand and low inventory.
“In many cases, the money factor, which is the leasing equivalent of an interest rate, equates to 6% or 7%,” Shattuck said. Compared with 2% to 4% interest rates on car loans, and considering the higher prices of cars, monthly lease payments are almost as close as normal loan payments,” she said.
“Leasing is not an attractive option right now for most makes and models,” Shattuck said. A recent comparison of a Chevrolet Traverse showed a purchase with no down payment and no trade-in at 1.9% interest would have a payment of $753 for 72 months. The monthly cost for the same vehicle on a four-year lease with a down payment equal to one month’s payment and a 12,000-miles per year allowance is $744.
Buy Your Own Leased Car and Sell it
Because of market value, leased cars are almost as much of an asset as a purchased car. “You can buy out your lease and turn around and sell it and make money,” Shattuck said. “Companies like Carvana have been offering insane amounts of money for gently used cars.”
Carvana, Shift, Vroom and CarMax are actively recruiting off-lease and used cars to buff up their inventory. That means it’s possible they’d jump at the opportunity to snag your car for the buyout price when they would have otherwise paid thousands more. The smart move is to buy out your leased car, turn around and sell it to them and walk away with a nice bonus. Perhaps enough for a solid down payment on a new car, too.
“I am [helping lease] a Kia Niro plug-in hybrid for one of my California clients,” Shattuck said, adding that the client also has a Volkswagen eGolf trade in. Normally, the Kia dealer would take her VW trade-in and do the paperwork for her, but that’s not the case now. “We have to do it in two separate transactions,” Shattuck said. Her client will make about $8,000 by selling her car directly to the VW dealer.
Though there are still a lot of tricks you can use to make good money selling your leased car, it’s more difficult now than ever before, Shattuck said. It’s important to read your paperwork, know the value of your car in the current market and give yourself time to complete the transaction.
For Those Who Lease
Leasing still may make the most sense for some people despite the unusual climate. If you are leasing a vehicle, make sure your lease will cover the mileage you typically drive in a year. Also pay attention to the maintenance you’ll need to keep up with and be prepared for the expense of turning it in. Since new car valuations are skewed higher, it probably won’t be a good deal to buy out the lease in three years.
Or at least one would guess. But who can predict the future?