End of Car Lease – How to Do it Right

end of leaseSo you’re about to come to the end of your 3-year car lease. How you handle it can make the difference between ending it as  good deal or a bad deal.

You have options.

Generally, at the normal end of a lease you have three options:

1. You can simply return the car to the lease company through a car dealer. Any dealer of the same brand vehicle will do. It doesn’t have to be the same dealer from which you originally leased. This can be important when negotiating deals for your next car. Your original dealer may not have the best deal.

Choosing the “return” option means you return the car and pay any excessive mileage or damage fees, and any disposition fee specified in your contract. You’ll be billed for those things by the lease company a couple of weeks after your return the car.

Most lease companies will schedule an inspection of your car about a month in advance of your return date. This is usually performed by an independent inspection company. You will be given a copy of the report. If the report indicates scratches, dents, or damages, it doesn’t necessarily mean that the lease company will charge you for them. However, if the damage is significant, it can be cheaper to get repairs done yourself rather than wait for the lease company to bill you. Save the receipts as proof the repairs were done. You should take your own “before” and “after” photographs.

Be sure to get a signed and detailed receipt from your dealer when you return your car. It is your proof that you returned the car on the specified date.

2. You have another option: buy your car from the lease company. All lease contracts have a lease-end vehicle purchase option with a guaranteed purchase price. If you decide to buy, you will be buying from the lease company, not your dealer. You can pay cash (check) or get a used-car loan from a bank or credit union. Notify your lease company about 30 days ahead of your return date.

Although you always have the option to buy your leased car there may be reasons you should or shouldn’t.

As an example, let’s say your lease-end purchase option price is $25,000 but your car is actually worth $30,000 (possibly because you didn’t use all your allotted mileage). Check with www.kbb.com and www.nadaguides.com to find your car’s value. If this is the case, you might be wise to purchase the car and sell it for a profit — or simply keep driving it.

On the other hand, let’s say the car is only worth $20,000. In this case it probably doesn’t make sense to pay $25,000 unless … you really like the car, you know how it’s been treated, and you don’t want to go looking for a comparable used car. However, if you do return the car, the lease company takes the financial hit because they over-estimated the value at the beginning of the lease. This situation is very common.

Some people, who have significantly exceeded their mileage allowance and/or damaged their leased vehicles, may choose to purchase at lease-end to avoid paying the associated fees. There is nothing wrong with that idea but they should realize that the purchase price will likely exceed the vehicle’s value, given the mileage and damages. In that sense, it’s impossible to avoid paying for the extra miles and damage. You pay one way, or another.

3. The third and final option is to trade the vehicle at lease-end. This is a good option only if the trade value of your vehicle exceeds your lease contract’s purchase price — which means you have some trade equity that can be used as part of a down payment on a new vehicle.

Here’s how it works. A dealer offers you a trade value (hopefully a fair one) against the price of a new vehicle, either purchased or leased. He buys the car from the lease company and puts it on his used car lot for resale. You get credit for the difference (the equity)  between the trade value and the lease-end purchase price.

On the other hand, if the vehicle’s trade value is lower than the lease-end purchase price, you have no trade equity. In that case, you simply return the vehicle without trading.

It’s always a good idea to check to determine if you have trade equity anytime you end a lease. Many people don’t, and throw away that money unnecessarily.

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