Leasing is a popular option for drivers who want a brand new car. Auto leases will make up about 24% of new car purchases in 2021, according to credit reporting company Experian.
Leasing can be a good choice for those chasing lower monthly payments, especially as car prices continue to rise. But when your lease is up, you have a decision to make: Should you turn in your leased car or buy it back from the leasing company?
If you’re coming to the end of an auto lease, you may be wondering which option is right for you and which choice makes the most financial sense.
Unfortunately, there is no clear answer to this question. Because the best decision for you will largely depend on your specific situation.
Here are some things to consider when deciding whether to lease or buy your car:
What are the benefits of leasing another vehicle?
- You get a new car. One of the benefits of leasing a vehicle in the first place is the ability to easily step into a new vehicle when your current lease expires. So, if you’re in love with that new car smell, or if you enjoy upgrading to new car features and technology every few years, leasing another car might be right for you.
- Lower your payments. Another benefit of leasing is lower monthly payments. When you lease a car, your payments are designed to cover only the depreciation of the car, not its total value. As a result you will spend less out of pocket every month.
- You will have warranty. The terms of a new car lease usually coincide with the car’s factory warranty. That means if something goes wrong during your lease, such as a mechanical failure, you won’t have to pay for repairs.
- You don’t have to worry about reselling or haggling. Selling a used car can be stressful. And sometimes negotiating the trade-in value at the dealership isn’t very easy. But when you get into a leased car, the process is relatively straightforward because you’ve already agreed to the lease terms before you pick up the keys.
What are the benefits of buying my leased vehicle?
- You know its history. When deciding to buy a used car, vehicle history reports from companies like CARFAX® and AutoCheck® can tell you if it has been damaged in an accident. They may even show some maintenance records. But there are still many unknowns. On the other hand, there are no surprises when you purchase your car on lease because you have owned the car since it was new.
- You will build equity. One disadvantage of continuous vehicle leasing is that you will always receive a monthly car payment but will never own a vehicle. Buying your car off-lease means you own the car once it’s paid off. And a paid off car means no more car payments
- There is no mileage limit. When you lease a vehicle, you sign a contract not to exceed a certain number of miles. It could keep you from planning your next family road trip, or it could leave you with a hefty mileage penalty at the end of your lease term. When you lease your car, you can drive it as much as you want without worrying about the odometer reading.
- You can sell it anytime. When you sign a lease, you agree to keep your car for a certain number of years. If you later decide you don’t want the car, or it no longer meets your family’s needs, turning in the car may result in an early termination fee. This is not something you have to worry about when buying an off-lease car. You have the freedom to sell your car whenever you want.
Should I buy my car off lease?
Now that you’ve considered the pros and cons of buying and leasing, you can make a more educated decision about which option is right for you. If you’re still on the fence, these questions may help you decide:
- Do you really want the car? As you read through this list, you’ll notice that there are a number of financial factors that influence whether buying your car over a lease is a wise choice. But if you don’t like your car at all, or if it no longer meets your needs, those factors don’t really matter.
- Does it make financial sense? When you originally signed your lease agreement, you set a “residual value” of how much your car will be worth at the end of the lease term. When it’s time to turn in your car, that price is basically your purchase price, or the price you’ll pay for your car. If you’re considering buying your car from a lease, start by checking the prices of similar vehicles. You can use an appraisal tool like Kelly Blue Book® or check the listed prices of comparable cars online. Is the residual value a good deal? If not, purchasing or leasing another vehicle may be worthwhile.
- Is it reliable? As mentioned above, lease terms usually coincide with the end of a vehicle’s factory warranty. This means that unless you purchase another extended warranty, you will be paying out-of-pocket for repair and maintenance costs. If your car has a strong reputation for reliability and doesn’t give you any problems during your lease period, then you have nothing to worry about. But if frequent visits to the repair shop are required, keep that in mind when you make your decision.
- Will you owe extra when you turn in your lease? Exceeding your mileage limit or excessive wear and tear on your vehicle during the lease period can result in some hefty fees when you turn in your vehicle. But if you buy it on lease, you don’t have to pay that fee. Review your lease agreement and do the math before you enter the dealership. If you expect to owe thousands of dollars in fines, buying your car may be the right choice.
- Can you get financing? Assuming you don’t have the cash to write a check for the purchase price of your car, you’ll need to get a used car loan. Again, you need to do your homework ahead of time as your interest rate and loan availability will depend on your credit score and income. Shop around your bank or local credit union to make sure you can get approved and see what interest rates you can get.
- Can you afford the payment? If you determine you can get financing, calculate what your monthly car payment will be. Even though you’re buying a used car, your monthly payments will almost certainly cost more than what you paid for the lease. That’s because your lease only covers the depreciation of the car, and you’ll be financing the whole thing if you decide to buy.
Protect your ride
If you decide to buy or lease a new vehicle, it will lose some value the moment you drive it off the lot. But that doesn’t mean your insurance coverage has to take a hit, either.
Talk to your local ERIE agent to learn more about auto insurance or get a quote to see the ERIE difference for yourself.