Car leases usually last two to four years, and as the lease comes to an end, the vehicle is returned to the dealership or leasing company, but there are other options too. Before returning your leased vehicle, review your options to see which one will work out well. Check out eAutoLease.com to read more about car leasing, how it works, and how you can choose the ideal strategy for your situation when you are nearing the end of your vehicle lease.
How Does Car Leasing Work?
Leasing a car means you are only paying for the portion of the car you will use. You pay the dealership to drive the vehicle for a predetermined amount of time, usually around two to four years. The payments are a mix of principal, interest, and taxes.
The main difference between leasing and buying is that when you buy a car using a loan, you are making payments towards eventual ownership of the car. The car is yours once the loan is paid in full. On the other hand, you are paying to drive the car for a short term when you lease.
The most important thing to know is what happens at the end of a car lease agreement. As the term or duration of the lease comes to an end, the vehicle must be returned to the leasing company, or you can also purchase it for its residual value. Almost all dealerships offer vehicles for lease and purchase. It is essential to compare prices on the monthly cost of buying vs. leasing for the same make and model to find the deal that suits you best.
Read more: Leasing vs. Buying a New Car
How to Lease a Car?
Leasing a car is not difficult. All you need to do is understand how it works and what makes it different from buying a car.
Leasing a vehicle includes:
- Selecting the vehicle make and model you want
- Shopping around and comparing prices from various dealerships
- Negotiate the lease price
- Completing a loan application that includes giving the lending company permission to pull your credit and review your credit score
- Deciding for how many years you want to lease a car
- Deciding on the mileage limit
- Signing a lease contract after agreeing to the lease terms
Checking out details helps you understand the benefits of leasing and if it is even worth it.
How to Prepare for the End of Your Lease
Before signing a lease agreement, you should also find out how a lease ends and what you can do to prepare for the end of your lease. About three to six months before it expires, you will start receiving reminders and incentive letters from the leasing company. This may also include promotions that encourage you to go for a new lease or buy out your existing lease and take vehicle ownership.
The following tips can save you from paying hefty penalties when you return the vehicle, transfer the lease or sell it:
- Check the vehicle and make minor repairs if necessary – If your leased vehicle has suffered wear and tear while you were driving it, it is best to have them repaired before turning in the car. The leasing company charges you a penalty to cover the cost of making repairs before selling or leasing the vehicle again. Examining the vehicle and making minor repairs will help you save money.
- Have the vehicle cleaned – Turning in a dirty and unkempt vehicle can also lead to penalty charging. Make sure to clean it or take it to a cleaner to avoid paying extra fees.
- Find out the current value of your vehicle – All vehicles depreciate over time, but some are popular and in high demand even if they have been used. Check out reliable and renowned websites to get a free estimate of the vehicle’s current value. If the current value is greater than the residual value that was estimated at the beginning of the lease, you may benefit by buying and reselling the vehicle or selling it to a dealership.
Read more: End Your Car Lease Early: Sell, Swap, or Buy
Options at the End of the Car Lease
Here are few options to consider when you are at the end of your lease. You can do any of the following when your car lease is coming to an end:
Extend your Lease
Some manufacturers and leasing companies allow you to extend the lease. Such options may be available month to month, in three-month, or one-year increments. You can check with the leasing company to find out more about extending your lease and how it can be done. Don’t forget to ask about mileage, as extending your lease means you will be driving more miles than you initially anticipated, and you need to add more miles to your limit.
Car lease Buyout
When the lessee purchases the vehicle at the end of the lease term, it is called a car lease buyout. The buyout price is stated in the contract or lease agreement and is based on what the residual value of the car would be at the end of the lease term predicted by the leasing company. If you can afford to buy the car, check out its value using the online car valuation sources easily available on websites.
Once you know the car’s worth, you can negotiate the buyout price with the leasing company. For a buyout, you will have to get a car loan or pay cash. Not all financing is created equal, so you will have to research loan rates. Having a good credit score will help you get a low rate on a buyout loan.
Dealership Buyout
Used cars are in high demand these days due to low inventory. Car dealerships are interested in buying a leased car as they can turn around and sell it and make a profit, especially if the car is in good condition with low mileage. If you are considering buying a new car and have positive equity in your leased car, you may be able to negotiate with a dealership and use the trade-in value to get a new car or a new lease. If you just want the cash, you can also check out a few dealerships and see which offers the best deal.
Selling a Leased Vehicle
Car leases usually allow the lessee to turn the car in at the end of the lease term or purchase the car in a buyout, but there is another option too. You can sell a leased car back to the dealership or a third party. If you have leased a car, but do not require it anymore due to a change in your work or driving needs or simply don’t want to keep it, you can sell it and make some money. If you have taken good care of the car, chances are it has retained its residual value, and it will fetch you some profit.
Transfer Lease
Also known as a lease transfer, swap, or takeover, it involves transferring your lease to someone else. All leasing companies do not allow this so make sure to check your lease agreement or call the leasing company before taking action. Some leasing companies allow complete transfer to a new driver, while others may only allow limited transfer, which means your name would remain on the lease even though someone else would take over payments. It is a risky option and if the new lessee fails to make payments, you will have to pay.
Trade for Another Lease
If the current market value of the vehicle is more than the residual value mentioned in the lease agreement, you can trade it in and use the equity to purchase or lease the next car.
Return the Vehicle
You can also return the vehicle if you are at the end of the lease and no longer wish to continue driving the same car. What happens at the end of a car lease depends on your finances, driving habits, and personal preference. Following the terms of the lease agreement, you can return the vehicle when the lease comes to an end.
Which Option Would Work Best for You?
What happens at the end of the lease is up to you. As you approach the lease end, you will have to decide which option seems best based on how long you plan to keep the car, which car you want to drive, and the overall monthly payment after working out other factors. Once you understand your needs, you will be able to work out the most suitable option.
Leasing a Car – Is It Really Worth It?
Leasing a car has its pros and cons. It is up to you to find out what works best for you and if it is worth it.
Pros of Car Leasing
- The monthly payments are lower
- You will always drive a newer car
- You can save on mechanical breakdown costs as the car will still be covered by a warranty
- You can test out other makes and models to see which one you want to buy
- You can get it for a short period of time
Cons of Car Leasing
- Insurance for leased cars costs more
- You cannot customize a leased car as it does not belong to you
- As the car is returned at the term end, you do not have any equity
- You only get to drive a limited number of miles
- There are numerous penalties and fees, including exceeding the mileage allowance and a fee for early termination of the lease contract
You need to have a detailed discussion with the leasing company as well as your car insurance company to find out how things will work out and if you will be able to handle a lease successfully.
Leasing vs. Buying a Car – Which One is Better?
The decision to buy or lease a car is your choice that depends on several factors, including how you will be using the vehicle and if you are ready for a long-term commitment or not.
Compared to buying a new car, leasing a car can be an attractive option for people who:
- Do not drive a lot, as leases come with a mileage plan, and going over the miles in your selected plan can result in penalty fees
- Want to drive a newer or nicer as car leases are short-term and offer a chance to drive a new car for a short term, about two to four years
- Want to keep monthly payments low as the short-term nature of a car lease means lower monthly payments as compared to a vehicle purchase
Monthly loan payments are based on vehicle depreciation. It is the difference between the value of the car when it is new and what the lender anticipates its value will be at the end of the lease term.
Cost differences associated with buying and leasing a car are usually influenced by the following:
- Term of a loan or a lease
- The amount of money you put down
- The interest rate you qualify for
- The value of the car
In the short term, monthly payments for car leases tend to be less, so it is less expensive to drive a luxury vehicle than it is to purchase one. However, in the long term, leasing costs more, and once you reach the lease end, you return the car.
If you cannot make up your mind about buying or leasing, it is best to seek expert advice. Considering the pros and cons of each and checking out prices for both options on the same vehicle may help you understand things better. Visit eAutoLease.com to know more about leasing, how it works, and what happens at the end of a car lease to make the perfect choice for you and your family.
