Is your lease almost over? It’s a situation that should be exciting—because you can essentially lease your current car at this point with no penalty, nothing lost—but to some people the situation also breeds apprehension.
While some people lease purely on convenience, most people understand that they might or might not be fiscally sound depending on the situation. Are you doing what’s smartest?
To put it as simply as possible, you have three possibilities:
Do your research, and run the numbers
Most leases issued today are "closed-end,” meaning the residual value is not subject to change once agreed upon, irrespective of changes in the marketplace. So, if you agree to a certain residual value at the time of the lease, you won’t be able to negotiate it in your favor at its end.
Leases are also rooted in prediction, so here’s where it pays to research the actual current value of your vehicle. Your payments are based on what lenders are advised—via a very well-developed industry—that the vehicle will be worth, on the wholesale market, when you bring it back at the end of the lease. That’s called the residual value, and it’s often called out as a percentage of the original MSRP.
Why it pays to research the actual private-party resale value (via a third-party site like Kelley Blue Book) is that these predicted values aren’t always on the mark. If the vehicle market has fundamentally changed since you leased your vehicle, you might find it particularly advantageous to buy your vehicle for the agreed-upon price and sell it privately.
Just a few years ago, for instance, when the combination of lagging economy and the federal government’s Cash for Clunkers program drove prices on used SUVs downward while small-car prices surged, some of those who were leasing a smaller, more efficient car suddenly found themselves in a place where they could make some money from their leased vehicle—or make a savvy purchase of a used car at below market value)—while those who were leasing an SUV, with a quick check of the numbers, were happy to just walk away from a vehicle that had depreciated far more than anticipated (and for which the purchase price would have been way above market value).
Provided the numbers do work out, there are other things that can work out in your favor. One is that you know the vehicle’s history. Unlike buying a used car, you won't be buying a pig in a poke — you’re the "first owner.”
If those numbers still leave you on the fence, here's some further general advice on what to do:
Leasing generally makes better cars available for a lower price. But it’s not without its caveats. As long as you’ve done the research, and turn in a clean, well-maintained vehicle, you’ll see the benefits much more clearly.