Should you return or buy your leased car?
After three or four years driving that SUV roomy enough for your kids’ hockey gear, or that slick convertible that turned heads when you dropped the roof, you may be coming to a financial fork in the road: your lease is about to expire.
When looking at your contract, bringing your leased vehicle back to the lot might seem like the next logical move, but it’s not always the smart economic choice.
Between 20 and 25 per cent of owners of leased vehicles purchase their automobile at the end of their term, estimates Mohamed Bouchama, a consultant for Car Help Canada, a consumer group specializing in car advice.
He and other auto industry experts say it takes a bit of research and some calculations to decide if doing the same will be a savings for you. They shared their tips for figuring out when it may be best to buy your leased car.
How much is it worth? The most important thing to look at when considering buying your leased vehicle is whether the car is worth more than what you have to pay for it, says Larry Lantz, the president of the Trillium Automobile Dealers Association and Hanover Honda.
It’s a good idea to stick with it if the residual value — what it costs to buy the vehicle at the end of a lease agreement — is less than its market value, which you can determine by consulting online value calculators from the Canadian Black Book and U.S.-based Edmunds.comor Kelley’s Blue Book.
You can also research to determine if it’s a deal to buy your used car by taking a peek at sites like Autotrader or Kijiji to see what used cars the same model and year as yours are being advertised for. However, most auto experts will warn you that listing prices online can be aspirational and, often, the vehicles sell for less.
It’s important to consider how outdated your car’s features are, Lantz says. Technology evolves so fast that you might not want to buy your leased vehicle if it’s already outdated.
Honda Civics and Toyota Corollas, for example, have reputations for holding their value quite well, Lantz says. But once anything is driven off the lot, it’s already sunk in value, points out Bouchama. What’s the mileage? When a leased vehicle is returned with low mileage, it means the leasing company can easily make more money off it because it’s attractive and still has considerable value on the resale market.
“If you didn’t put many kilometres on it, you don’t want someone else to take advantage of it,” Lantz said.
Conversely, if you’ve exceeded the mileage you estimated and agreed upon in your lease, you can often be hit with additional charges. What’s the condition? Bouchama has met dozens of leasees, who he says don’t treat their vehicles very well. Some don’t even fix significant dings, scratches or burn marks in the interior.
“Even when it comes to oil changes, they wait until the last minute,” he says. Many tell him they don’t fuss over their leased vehicle because they think of it like a rental.
But that attitude costs them, he says. When you return a vehicle with excessive damages or wear and tear, leasing companies tack on extra fees. Buying the car will spare you the fees, which might be a good idea if you’ve racked up a high bill for damages.
Any of the pressing needs can often be fixed at a local body shop for far less money than a dealership will charge you, Bouchama says.
On the other hand, he says, if you’ve kept the car in immaculate condition and don’t owe anything for damages, that can also be an incentive to buy it. Are you attached to it? Sometimes just being comfortable with the car is reason enough to keep it. If you detest the hassle of shopping around for a car to lease or have grown to love your vehicle too much to give it up, then keep it.