What to Do With A Vehicle At The End of A Lease

A reader wrote into Bankrate and asked what he should do with his truck now that the lease was up. Should he buy it for the residual price, or simply lease a new truck?

    What most people do is turn in their leased vehicle, get a new one and then continue with payments. As the dealer said, you can also buy your truck for the “residual price” you agreed to when it was new. The problem with that last choice is that if you take out a loan to cover the residual price, you’ll likely end up essentially having a seven- or eight-year loan — the term of the lease plus the term of the subsequent loan.

    You will wind up having paid an enormous amount in interest over the life of the two transactions and, since vehicles usually need more repairs after the fifth year, you could be faced with both car payments and significant maintenance bills.

Bankrate concluded that the best thing would be to turn in the old truck and lease a new one. They also mentioned some options such as Swapalease.com and LeaseTrading.com.—MEGHANN MARCO

What to do when truck lease is up
[Bankrate]

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  1. I have not had a car loan or lease payment in over 20 years. They always have felt to me like big rip offs.

  2. RapperMC says:

    I have no statistics for this, and am perfectly fine to be shot down, but my understanding is that both leasing and buying the remainder of the value are big ripoffs. I’d say he is better to buy a used truck. You’re letting someone else pay all the lame padded fees, and you actually own the truck.

  3. Yep says:

    My opinion – buy something off-lease that’s been dealer serviced and comes with a bit of warranty left over. If you must buy new, at least be prepared to drive the thing until it rusts out from under you. Leases are for suckers.

  4. Sucko-T says:

    Why are leases for suckers? There are lots of good deals if you look for them. You can lease a new accord for 199 a month for 36 months with 36 $2,199.00 due at signing.

    Lets say you purchased that Accord for 19,000. You would have to pay 367 a month for 60 months. By leasing you could drive two new cars in five years and have smaller payments as long as you keep leasing.

    I worked at a car dealer for five years and I know they make their money by selling off-lease vehicles that they purchase at auctions, we’re talking between $4,000 and 8,000 gross per deal.

  5. LatherRinseRepeat says:

    I think I read somewhere that the buy-out price is negotiable, despite what the residual says in the lease contract. Call the leasing company and ask. Because honestly, I don’t think they want the car back. They’re going to have to spend time/money/effort to prep that car for resell, if it’s going to be a “certified” used vehicle. And they’re going to lose some money if they decide to sell it to a used car broker. Besides, if the negotiated value is cheaper than the market value, you can always sell it and make a small profit.

    But yeah, I would generally advise against leasing, unless you’re the type of person that likes to drive a new car every few years. Or if you want to buy an upscale car but don’t want to put up a lot of money.

  6. “Lets say you purchased that Accord for 19,000.”

    Let’s say you purchased that Accord for $19,000 flat without a loan OR a lease. That’s the smarter way to go, and I think that’s what other people are suggesting they do.

    (Actually, the smarter way to go is to go find the same accord with 6,000 miles on it at another dealer, but not a Honda dealer (trickier to unload), for 2/3 of the price with nearly all the warranty left, but I digress.)

    I have never made a car payment. Payments are for mortgages and student loans, not cars, credit cards, furniture, or appliances.

  7. brokenboy says:

    You can also try and negotiate the purchase-back value down with the dealer. Since you’re under no obligation to buy it, the dealer might be in a dealing mood.

  8. Mojosan says:

    I have a number of cars and I think I’m very financially astute. Anyone who says “leases are for suckers” is wrong. Period.

    Weather you buy or lease you are simply paying for the depreciation of the car that you use up. And a lease generally allows you to drive the same car for much less or a better car for the same money as a lesser car.

    Keep in mind that when you pay cash for a car you are forgoing the time value of your money.

    When a manufacturer puts a rebate on a vehicle the lease often becomes a screaming deal over a purchase.
    -If your lease payments add up to $15,000 on a $40,000 car and the manufacturer has a $1500 incentive your lease payment just got lowered by 10%.
    -That same $1500 incentive on the purchase of the same $40,000 car means your loan payment went down by 3.75%.

    On vehicles that I know I am going to want to turn over every 3 years or so it almost always makes sence to lease. On vehicles I know I’m keeping for the long haul it generally makes sence to buy.

    Every situation is different. Offhandedly dismissing one form or another is foolish.

  9. Falconfire says:

    Let’s say you purchased that Accord for $19,000 flat without a loan OR a lease. That’s the smarter way to go, and I think that’s what other people are suggesting they do.

    I really hate that the commenting system was opened up, seems like a awful lot of asshats got in.

    In the perfect world, yes we could all spend 19,000 flat on a car, but until a year ago my salary WAS 20,000, and thats before I even paid taxes.

    Most people dont have the money to just payoff something instantly, so you work to get the best deal you can. In my experience between buying a car, and leasing one, the lease turned out to be the better deal. Im paying 250 dollars a month for a car as good as my fiance’s but without the hassle of worrying about the 5th year breakdown, and for 100 less than her loan was from honda.

    better I didnt like this car totally. At the end of the lease (in 2 years) I’m turning it in and I’m going back to Saturn who’s cars I liked better.

    Maybe in the perfect world I woudl make enough to just throw down 20 grand like it was nothing, but then in the perfect world I wouldnt even buy a car, someone would carry me in a golden chariot.

  10. thrillhouse says:

    Consumer Reports, Consumer Federation of America, and Smart Money Magazine all say that the car fleece is the most expensive way to operate a vehicle. Thats why they call it “Fleecing.” You’re essentially renting the car. And if you’re ok with that, then go for it. But thats why the math will look unusual. Its not a traditional loan, its a long-term rental agreement, but you are still paying interest. It will usually be represented as a decimal instead of a percentage. ‘Truth in Lending’ takes a beating here.

    There are also a lot of shady business practices that dealers use leases to cover up.

    If you want to get out early:

    “Just call the lease company and get the early buy-out amount. That’s different than the remaining payments plus the residual value. Residual value is what you can buy it for at the end of the lease. That amount plus the remaining payments is your total financial exposure. The early buy-out should be less than that because you won’t be making interest payments for the remaining time.

    Next, go to Kelly Blue Book – kbb.com – and find out what the car is actually worth.

    Finally, decide how you’re going to come up with the difference and get rid of the leased vehicle.

    For example, if the early buy-out is $20,000 and the car is worth $16,000, you’d be $4,000 in the hole. You would have to have that money – either saved up or borrowed. A debt of $4,000 instead of $20,000 means you’re heading the right direction even though you’ve just taken out a new loan.”

    Now if enough of you will keep leasing them so that I can buy them dirt-cheap on the used market, then that would be great.

  11. bob9 says:

    I’m a sales consultant for a major automaker. Buying out your lease is not encouraged. The interest you pay in the end is out of this world.

    Lease another vehicle, or take advantage of returning lessee deals. Such as $1,000 towards financing for a returning lessee. Some brands have lease pull ahead deals where they may make the remaining 2 payments etc..

    Stay away from buying your lease unless you really love the vehicle.

  12. superbmtsub says:

    Oh Why Oh Why do people need to buy cars they cant afford? They make 20K/year but want a car that costs what? 15K? Makes no sense. If you earn friggin 20K, you buy a car that suits your salary … Aveo or some cheaper used cars.

    We truly are a nation in debt!

  13. Antediluvian says:

    My mother-in-law’s lease is up for her car this summer. I was considering buying it because it’s been well taken care of, I’ll need a replacement car around that time, and it’s a model I’d consider.

    Should I buy her car through that “residual value” thing (or whatever it’s called) when she’s done, or should I keep shopping for another offer? I’d buy it on our home equity line of credit.

    Thoughts? Thanks.

  14. shoegazer says:

    Ante: if you have the cash, you can get your mother to purchase it for its residual value. Be warned this may be more expensive than buying a similar used model, but hey – it’s your mom’s car.

    I work for a software firm that does the calculations for lease and hire purchase deals. Most of the money is made on the charges / fees for early termination, i.e. buying out your contract. I know that lots of deals on the initial lease can work out to be cheaper than bank loans, in exchange you are committing to a fixed term of use for your vehicle.

    Another thing is, in the UK at least, there are (or were) huge tax advantages to leasing a car for your business, as you can get back tax on your payments. This loophole’s being closed though.

  15. DeeJayQueue says:

    Try to buy a car that’s under 10k that’s reliable, good on gas, not used, and not a POS. The Chevy Aveo starts at $14k, and it’s a Korean rebadge. In some places 20k a year is a living wage. It’s also becoming more and more common to have a hefty commute, and a used car with little to no warranty and a bunch of miles of questionable at best origin is just not acceptable for some people.

    It’s also a little easier to get into a lease with bad credit than it is to get into a full-on new car loan, and getting a used car loan from a bank is next to impossible.

    (and yes, the people with bad credit should have made smarter choices in the past, but they still have to get to work today).

    Leasing or buying new might not make the best long-term financial sense from such a linear standpoint, but we’re not all linear people. Some of us have bad credit or don’t make a ton of cash, but we still need to get to work just like everyone else does and nobody deserves to drive a shitbox just because it’s the only thing “within their salary range.” If given the choice between an 1985 K car or a 2006 Accord, guess what people will take?

  16. segfault, registered cat offender says:

    Manufacturers sometimes heavily subsidize their lease programs by offering low money factors (interest rates) and inflated residual values. The Accord example was an example of a subsidized lease. If you can get a subsidized lease, and like to trade vehicles frequently, it’s a great way to enjoy a vehicle.

    If you decide to purchase at the end of a subsidized lease, you will likely end up paying more than you would for a similar used car, due to the inflated residual value (which helps you during the lease term but hurts you should you decide to purchase).

  17. Mike_ says:

    The end-of-lease purchase price is not the same thing as residual value. On my current contract, that price includes $500 in profit for whichever dealer I buy the car from at the end of the lease term. I’m sure it’s negotiable.

  18. Antediluvian says:

    See, that’s why I asked the question. My opportunity is to purchase the m-i-l’s car at the end of her lease, the end of lease purchase thing.

    Personally, I keep my cars longer than 3-5 years, so leasing is not for me, but I don’t know if this “gently used” car purchase opportunity is a good one, bad one, or great one.

    Like Barbie says, “Math is hard.”

  19. dayjayvw says:

    Leases work for my wife and I as it enables her to drive a new car every 36 months for little money. Example:

    Just got a 2007 honda odyssey minivan sticker was 25k

    Our lease is 269 a month with 0.00 down
    In 3 years she turns it in with 36k on the odometer and walks away goes and leases something else. This works for us as she has a minimal commute allowing us to use the rest of the 36k mile alotment for travel as a family.

    My sister inlaw chooses to buy.

    She buys a 07 toyota sienna mini van for 25k

    She plans to drive this van “into the ground” she drives it a little more than us and will crank out about 90k miles over 5 years which is term of the loan. In 2012 it will be paid off, and be worth about 5,000.00, losing 20k in value in 5 years, not including maintenance.

    If she was to trade in the sienna in 3 years after making payments around 400.00 a month with 5,000.00 down she “MIGHT” break even.

    Keep in mind in 3 years my wife and I put gas in the car, change the oil every 3k and we’re done. So yes we always have a payment but it’s a small one, and we never spend any money on maintenace as the lease is always up before the bumper to bumper.

  20. dayjayvw says:

    Also lease aren’t for everyone. If you even think you won’t finish the term, don’t lease. Another example was a friend who was upside down on a car loan traded on a lease and the lease was a lemon from day one, she then took her lease traded it in (thus needing to be paid off along with the negative equity on her old car) and now she has a huge monthly payment on an aveo type car.

  21. @DeeJayQueue: Why would you want to buy a new car for under 10 grand? Obviously its not going to be all of those things you described. What is the obsession with a new car? For under 5 grand you can buy a moderately used car (50-60k) that is in good shape and just a few years old. I do this, and over the first 5 years of the car, or until the first big maintenance problem (tranny, heads, etc), I average about $500/year in maintenance. I get a car that’s a nicer car than the budget cars, AND I only put into it 45 dollars a month worth of money. Its my opinion that ANYONE who buys a new car either has a screw loose or has more money than they know what to do with.

  22. FalconFire:

    “In the perfect world, yes we could all spend 19,000 flat on a car, but until a year ago my salary WAS 20,000, and thats before I even paid taxes.”

    I wasn’t trying to be an asshat — the $19,000 car was the given example to which I was responding. I personally have never owned a car worth that much. The last one I bought was $7,000. I really can’t actually imagine spending $19,000 on a car, even though I suppose in theory in a few years we could afford it. I’d rather put the $12,000 differential into building home equity or retirement savings.

    If one can’t afford a $19,000 car flat out, one should probably not be making payments on a $19,000 car anyway. I have all these friends with car payments the size of my mortgage payment because they don’t want to feel like they drive a “stupid” car, and I think that’s ridiculous. If people want to laugh at my car, I hope it brightens their day. It’ll certainly brighten mine when I can PAY FOR RETIREMENT because I didn’t waste ridiculous amounts of money so people I don’t even know will think my car is cool enough.

  23. DeeJayQueue: “not used”

    What’s wrong with a used car? You can get same-model-year used cars with under 10,000 miles on them factory-approved-refurbished (whatever they call that), 4 years left on the warranty, from the $15k to $25k range for under $10,000 used.

    We’ve had no problem whatsoever with ours and have been driving it four years now. Incidentally, the first owner was a young woman just out of college who financed the car and then couldn’t make the payments. So we snapped up a used 2002 Focus (in 2002!), factory-refurbished-certified thingie, with less than 6k miles on it for $7,000. It was $17k-ish new with the options that were on it.

    Maybe it has a taint of usedness on it, but I can’t tell. :)

  24. Antediluvian says:

    Ah, yes, the other reason I don’t lease: I’ll easily put well in excess of 12k miles/year on it.

  25. dayjayvw says:

    “If one can’t afford a $19,000 car flat out, one should probably not be making payments on a $19,000 car anyway”

    That really doesn’t make any sense. Not alot of people have 19k in liquid assets to put towards a car, but they can afford a small % each month toward a car payment. Kind of an ignorant statement on your part I’m assuming that you’re young based on the salary so it makes a little more sense why you’d make such a comment.

  26. thrillhouse says:

    dayjayvw -

    It makes total sense. And no, you can’t afford the interest, especially when that new car will lose on average 60% of its value in the first 4 years. So paying for the privilege of taking that hit, on top of the hit? No, I don’t think so. Leasing is even worse – you end up with nothing. You pay and pay and pay, just to walk away with a handshake and a wave from the dealer.

    And when did used cars become so scary and unreliable? If you’re fearing repairs, then try and buy it with enough room to make the repairs. Besides, paid-for cars drive like a dream.

    Also – the decision is not just between brand-new or a clunker for life. If you are cash-strapped, then buy as reliable as you can for as cheap as you can – for cash. An $800-1000 car can be had almost anywhere. No its not glamorous, but it will be good motivation to save up more cash to pair up with money from the sale of the first car to buy the next one. Poor people who keep doing poor things (like paying interest on something going down in value) will remain poor. Paying cash does not mean you must be loaded, but ti does require patience.

    Now, don’t think that I’m trying to talk you out of this. As mentioned before, so long as some of you will keep taking the hit for us, people like Eyebrows or I can keep getting great deals on used cars.

  27. Miguel Valdespino says:

    Do you like to always have a new car and are willing to always have a car payment? Lease (but read up on leases before you do). If you prefer to keep a car for longer than the payment, buy. Simple, no?

    Oh, and DeeJayQueue – You talk about the Chevy Aveo being a Korean rebrand as if it were a bad thing. I’d much rather buy a rebrand than an actual “American” car nowadays.