Lease Vs Buy Car Article
Buy a car at the end of your lease
You have come to the end of your lease and you like you car enough you want to
keep it in the driveway. Just like buying a used car, there is some research to
be done to nail a good deal.
First, you need to know the cost of buying out your lease. Read the fine print
of your contract and look for the “purchase option price”. This price is set by
the leasing company and usually comprises the residual value of the car at the
end of the lease plus a purchase-option fee ranging from $300 to $500. When you
signed on the dotted line, your monthly payments were calculated as the
difference between the vehicle’s sticker price and its estimated value at the
end of the lease, plus a monthly financing fee. This estimated price of the car
value at the end of the lease is what is termed in leasing jargon “residual
value”. It is the expected depreciation – or loss in value – of the vehicle over
the scheduled-lease period. For example, a car with a sticker price of $40,000
and a 50% residual percentage will have an estimated $20,000 value at lease end.
Now that you know the cost of buying out your lease, you need to determine the
actual value, also termed “market value”, of your vehicle. So, how much does
your car retail for in the market? To pin down a good, solid estimate you need
to do some pricing research. Check the price of the vehicle, with similar
mileage and condition, with different dealers. Use online pricing websites, such
as Cars.com, Edmunds.com and Kelly Blue Book for detailed pricing information.
Gleaning pricing information from various sources should give you a fair
estimate of your vehicle’s retail value.
All you have to do now is compare the two amounts. If the residual value is lower than the actual retail value, than you’re into a winner. Unfortunately, there is a good chance a car coming off a lease is a little on the high side. Don’t despair though. Leasing companies know as much that residual values on their vehicles are greater than their market value and as such are always on the look out for offers. You can knock down on the price of your leased vehicle with some smooth negotiating tactics. Put forward a price that is below your actual target and negotiate hard until you wind up near that figure.
