Your car's lease is up — now what?

Hear those weird noises? It's the sound of the car industry shifting.

If you have a leased vehicle that is coming due, what should you be thinking about doing?

For the past two years you've been advised to buy out your existing vehicle, if you can.

With no new stock to choose from, your own used car is usually your best bet.

Now, stock is starting to trickle in, but higher fuel prices and rising interest rates are moving from bit players to starring roles.

The leased vehicle sitting in your driveway is likely worth more than what your contract tells you is the anticipated residual value.

Go check your contract; now drop your car into a vehicle-finder online site. See?

With values in the used market pushed to nosebleed heights by global chip shortages, many people have discovered their used vehicle is worth even more than new iterations of the same. Daniel Ross, senior automotive analyst with Canadian Black Book, says we've probably seen the peak of those prices.

“Prices are stabilizing, and we think increases in value are about done. But there won't be a sudden drop, it will a gradual settling,” he says.

If you were playing the market, now is the start of the shift. If you're turning in a lease and feel your dealer isn't giving you enough, head to another dealer. They're looking to buy.

The term “perfect storm” was overused during the pandemic, mainly because we'd never seen anything like it.

Stock dried up, many people started working from home, many avoided transit, and many had pent-up cash as a result of suspended travel.

Now there's a new iteration of pressure on consumers.

“The six-cylinders, the big engines, those are starting to sit on the lot longer,” says the manager.

“Gas prices pushed people almost overnight to the crossovers and smaller vehicles,” says one sales manager I spoke with.

For those holding a lease, fuel costs are where Ross now sees the biggest reason to make changes.

“With fuel costs up 58 per cent over last year, you might want to be unloading a gas guzzler. That is where the values are coming down the most.”

He recommends considering two volatile factors: fuel costs and rising interest rates.

“A higher interest rate might drive up the cost of the vehicle, but if you can offset that by saving on fuel consumption, that might be your best bet, and should be a consideration.”

With interest rates on the rise, the period of free money we all got so used to is over.

Common advice is to head to your bank to determine if securing a car loan through them makes more financial sense for you, but beware of gremlins that have entered the market — like dealers forcing you to take their financing.

Ross is still advocating for the advice he offered two years ago: if you've no reason to get out of your lease, don't.

“Hang on to your car, stay the course,” he recommends.

“Talk to your dealer. You can often negotiate a lease extension until a new vehicle arrives, particularly if you're staying within the same brand.”

So, don't anticipate a sudden flood of stock, or a crashing of prices.

Where changes wrought by the pandemic forced consumer behaviours one way, high fuel costs and rising interest rates are now pushing them in another.

If your lease is up and you like the vehicle, consider staying with it.

If you turn it in, you should make money on it.

If gas prices are killing you and you need to get into something smaller, look in the sedan segment where fewer people shop.

If you're going EV or hybrid, talk to your dealer about placing an order and extending your lease until it comes in.

Know that manufacturers push most of that product to Quebec and British Columbia — removing subsidies has costs, Ontario.