You're almost at the end of your lease. What now? In this blog entry, we outline what your options are at your lease end so you can determine if buying the vehicle is the right choice for you.

Every lease is different; you may have put money down, or you may have opted for a short-term or long-term lease. Depending on the options you chose for your lease, buying the vehicle at the end of your lease may be an attractive option. Here are 5 factors you should consider before deciding whether to purchase or turn-in. 

Find out what the vehicle is worth. Use a tool like KBB to see what the current market value is of your vehicle. Next, look at your lease paperwork find a value called "residual". The residual is a non-negotiable price that your lender determined is what you will owe at the end of your lease if you choose to buy the vehicle. Usually, the residual value is a very accurate prediction of what the vehicle will be worth at the end of your lease and it rarely varies by more than a few percent higher or lower than what the actual market value ends up being. See how close your residual is to the actual market value. If the residual is much higher than the current market value, it may be in your best interest to return the vehicle; otherwise you'll be paying more than market value for the vehicle. However, there are rare cases when the residual is much lower than the market value...if that's the case, then buy that vehicle and you'll have built-in equity. If the value and residual are within a few percent of each other, your decision may come down to another factor.

What is your mileage? All leases are written to allow you to drive a specific number of miles per year. ULML are ultra-low mileage leases and allow you to drive 10,000 miles annually. Other typical mileage allowances are 12,000 and 15,000 miles per year. Let's say you had a 24 month lease with a ULML. That means when your lease is over, you're expected to turn the vehicle in with 20,000 or fewer miles on it. If the vehicle has more than 20,000 miles, you will be charged anywhere from $.15 to $.25 per mile for each mile over! You could end up owing thousands of dollars in over-mileage fees if you turn the vehicle in. However, if you buy the vehicle, you will ONLY pay the residual value and you won't have to pay for the extra miles you racked up.

Maintenance. When you leased the vehicle, it was in showroom condition; brand new and gorgeous. Now that you've put some miles on it, maybe it's gotten a few rock chips in the hood, or a coffee stain on the carpet. Some of this wear and tear is considered normal and the cost of this is built into your lease payment. However, each manufacturer and/or lending institution has different policies on what they consider "normal" wear and tear. If you've had a fender bender, worn out your tires, have damage to the interior, mechanical problems or other issues the company deems excessive, you WILL be held liable to pay for these damages when you turn the vehicle in. You could easily end up owing thousands in damage fees if you've not taken care of the vehicle very well. If you've treated the vehicle well and maintained it perfectly, you may be in a good position to turn the vehicle back in. However, if you've not taken care of it like it should have been, you may be better off buying the vehicle to avoid paying repair fees.

Payments and credit. With most leases, residual values, and the fact that most vehicles cost tens of thousands of dollars, it's likely that the average person won't have the cash on hand to buy the vehicle outright at the end of the lease and will need to finance the residual amount. Keep in mind that loans to buy a vehicle are usually carry a higher monthly payment than a lease payment. There are many reasons for this, but for the sake of helping you make a decision, remember that if you buy the vehicle, your monthly payment will usually be higher than your lease payment (sometimes by a few dollars up to $100 or more extra per month). If you don't have issues with mileage or excess wear and tear and you don't want a higher payment, your best bet may be to turn in your lease and get another new vehicle and start a new lease. One other factor to consider is how your credit rating has changed during the life of your lease. If your credit score has improved, you might get a better deal by leasing a new vehicle. Conversely, if you've experienced some difficult financial challenges during your lease and your credit score has suffered, you should seek the advice of the finance manager at the dealership where you leased your vehicle on which option is best for you.

Are you still in love with your ride? If buying your leased vehicle at the end of the term makes financial sense, but your heart isn't into it, it's time to bail out. Maybe your work commute has changed since you first leased your vehicle and you need something with better mileage, or maybe your family has grown and you need 3rd row seating, or you're now an empty nester and don't need a minivan. These life changes could mean that you've outgrown your leased vehicle and it's time to pick something that suits your current situation better.

Summary. No one other than you can figure out what will be your best option. However, by following our suggestions, hopefully you can figure out whether it's time to make your lease a permanent part of your family or opt for something newer.
 

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