The Expert Podcast

So, what should you do at the end of your car lease if you're leasing a vehicle and that lease is about ready to end? Maybe you're a few months away from your lease termination, maybe you have a few payments left, or maybe it's pretty much done. You have three options for disposing of that vehicle. In most cases, every lease is a little different, but this is how most lease contracts have been created over the years.

Option number one is you can bring the car back to the dealer, drop off the keys, and walk away. As long as you are under the mileage that's the maximum mileage and you have no major wear and tear or damage, you're off the hook. You bring the car, drop off the keys, and walk away. However, keep in mind if you do that, you might be walking away from hundreds or thousands of dollars in equity that you didn't even know you had. The dealer's not going to tell you. We'll come back to that in a minute.

Option number two is you can trade it in for a new vehicle. Now, be very careful that if you're trading it in, you understand the difference between a trade-in and a turn-in. And here's why: when automotive leases were created over the last five to ten years, the way it works is you have a guaranteed buyout at the end of your lease. You have a fixed price that you're allowed to buy that car for at the end of your lease, and that price served a few purposes.

First of all, it was used to reduce the amount you had to finance. For example, if you bought a thirty-thousand-dollar car and they figured, "Well, you know what, in three years that car's gonna be worth twelve thousand dollars," what they would do is they would take that twelve thousand dollars and take it off of your financing right off the bat. They would basically give you a twelve thousand dollar down payment, so you only have to pay the eighteen thousand—the difference between what you're paying for it and what it's worth in three years. So, you make payments on that eighteen thousand, and at the end of that term, if you wanted to pay the eighteen thousand, you could pay it, and you own it. Or you could just give it back to them, and they use that value to pay the money that they reduced your price from to begin with.

Now, how did they figure that value? What they did was they based it on what they thought the vehicle was going to be worth in three years. They got to be pretty close. If they guessed too high, now they're stuck with the vehicle. If they guessed too low, your payments are going to be too high, and you won't buy the car, so they have to be pretty accurate. They used historical records, book values, projected depreciation, and all kinds of factors, and for the most part, they're pretty good at this.

However, in the last two years, used car vehicle prices have skyrocketed. Many cars are actually worth more now than they were when they were brand new. We see cars selling all the time as used cars—two or three years old with 20,000 miles—for more than the original sticker price. So, if you have a vehicle that was leased, let's say that 30-thousand-dollar vehicle, and they projected the value was only going to be twelve thousand, what happens now if the market has changed and your vehicle is worth twenty thousand instead of twelve? Well, guess what? You still have the option to buy it for twelve thousand dollars, meaning that if it's worth twenty, you can buy it for twelve and either sell it for twenty and put eight thousand in your pocket, or you can trade it in for twenty minus the twelve and put eight thousand towards your next car. But don't let the dealer swallow up that equity if you just do a turn-in and buy a new vehicle. That eight thousand dollars, they're gonna keep. They're going to buy it for twelve, let you buy the new vehicle just for whatever the price was, and not apply that equity to your new car unless you really pay attention to the paperwork. You may not even know that happened.

What happens if you want to keep your car? Well, that's good because now you're buying a car for twelve thousand that if you went somewhere else to buy it is worth twenty in today's market. So, pay very close attention to your lease turn-in. Look at your contract. More than likely, you have a firm option—fixed price to buy that car at the end of your lease. That was in your contract. It can't change. It doesn't matter the mileage or condition if you're buying it. It's your car now.

The other advantage of buying that car is you're buying a used car that you know the history. You know the prior owner, you know everything about it. How lucky is that? Most times, you buy a used car, you're buying a pig in a poke. You don't know where that car's been. This car, you know where it's been. Plus, if for some reason you are over on mileage or there's damage, you buy it—that doesn't come into play. You don't have to pay a penalty if you're buying the car.

Now, there may be a couple things to keep in mind. First is some leases require that if you're selling it at the end of the lease, you have to buy it. You can't sell it to somebody else right away. You have to buy it first and then resell it. You know, that's a little bit scammy, but if that's in the contract, that's what it is. You may also have what's called a disposition fee, meaning that you have to pay two or three hundred dollars to dispose of the car to buy it. Your contract will determine that. If it's not in your original lease contract, a dealer can't add it later, so make sure that if the dealer's adding fees for you to buy your own car, make sure they were in the original contract. If they're not in there, they can't add fees.

Some dealers even will go and say, "Look, we have to certify your car because you're buying a used car from us, so we have to make sure it's safe for the road." So you have to pay a thousand dollars to give you a certification. Check with your local statutes to find out what the laws are in your state. There's been many dealers that have tried to mark up cars for people to buy their own car and found out you can't do that. But once you do it, you've agreed to it, and you may not be able to get that money back.

So, check your contract and start doing this early. Start doing this months earlier than the lease ends because if you're pressed for time at the end, you may have to accept a contract that maybe you don't have time to research. Also, look at financing. If you go to the dealer, they might hit you with higher financing than if you go to your own bank or credit union to buy your own car. You might be able to do it that way.

Make sure that if you do buy out your own car, you get the title transferred because that lease car is not titled in your name. It's titled in the name of the lease company. So once you buy the car, you want the title to be transferred from the lease company to you as the owner. Make sure you get that title in your hands. We get a lot of people who contact us that say, "Hey, look, I bought my vehicle, I never got the title from the lease company." Now it's a hassle because what if that lease company's out of business three years later or they don't know about it? You want to get that title transferred immediately into your name.

If you have questions about lease turn-ins, let us know. Put your message in the comments. But this is a good way to get a great deal on a vehicle you know a lot about.