Market conditions create opportunity for car lessees

Dear Car Talk: Our 2018 Mercedes C300 lease is expiring soon. The lease states that the residual value is $22,000. But when I looked it up online, I found out the car is now worth $30,000.

Should we buy it “off lease” and sell it ourselves? Could Mercedes want to charge us more for the car than the residual listed in the lease? —

Gene: Yes, you should buy the car at the end of the lease and sell it yourself, Gene.

A lease is a contract, and Mercedes can’t change it now that the car is suddenly worth more than they expected.

If the car was worth less than $22,000 now, do you think Mercedes would have said, “OK, just give us $12K, Gene, and we’ll call it even?”

Here’s how a lease works. When you lease a car, the car company estimates what the vehicle will be worth at the end of the lease period.

Let’s say the car retails for $30,000. The company, based on lots of historical data, estimates that after 36 months and 36,000 miles, the car will be worth, say, $20,000. What you pay during the lease is the difference between those two numbers. So, in this case, you’ll pay $10,000 over the 36 months you use the car, plus some interest.

At the end of the lease period, you have the right to either buy the car for that predetermined residual value, or you can turn it in and walk away.

But here’s what’s different at the moment: Due to new vehicle shortages and the resulting big increases in used car prices, many lessees are now finding that their cars are worth more — often much more — than the estimated residual value. Hey, stuff happens!

So you have two choices, Gene. You can either buy the car at a discount and make a profit on it yourself, or you can let the dealer keep it and make a profit on it. That’s an easy one, right?

Dealerships fully understand what’s going on here and will be trying hard to convince you to just turn in your leased car. They’ll offer you small perks (i.e., one free lease payment) and hope you haven’t realized that you can make thousands by purchasing it yourself. Or save thousands by buying it at a discount and keeping it.

Lessees