For drivers who want a brand-new vehicle, leasing remains a popular option. According to the credit reporting company Experian, auto leases made up about 24% of new car purchases in 2021.
Leasing can be a good choice for those chasing a low monthly payment, especially as vehicle prices continue to rise. But when your lease term is up, you’ll have a decision to make: will you turn in your leased vehicle or purchase it back from the leasing company?
If you’re approaching 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’s no clear-cut answer to this question. That’s because the best decision for you will largely depend on your specific situation.
Here are some factors to consider when deciding if you should buy your car off lease:
What Are the Benefits of Leasing Another Vehicle?
- You get a new car. One advantage of leasing a vehicle in the first place is the ability to easily step into a new car when your current lease term is up. So, if you’re in love with that new car smell, or if you just enjoy upgrading every few years for the newest vehicle features and technologies, then leasing another vehicle may be right for you.
- Your payments are lower. Another benefit of leasing is the low monthly payment. When you lease a car, your payment is designed to only cover the depreciation of the vehicle, not its total value. The result is that you’ll spend less out-of-pocket each month.
- You’ll have a warranty. Lease terms on a new vehicle typically correspond with the vehicle’s factory warranty. That means if something goes wrong during your lease, such as a mechanical failure, you won’t need to pay for the repairs.
- You don’t have to worry about resale or haggling. Selling a used car can be stressful. And sometimes negotiating a trade-in value at the dealership isn’t much easier. But when you turn in a leased vehicle, the process is relatively straightforward because you’ve already agreed to the lease terms before you took the keys.
What Are the Benefits of Purchasing My Leased Vehicle?
- You know its history. When deciding whether to buy a used car, vehicle history reports from companies like CARFAX® and AutoCheck® can let you know whether it has ever been damaged in an accident. They can even show some maintenance records. But there are still plenty of unknowns. On the other hand, when you purchase your car from a lease there are no surprises because you’ve owned the vehicle since it was new.
- You’ll build equity. A disadvantage of continually leasing vehicles is that you’ll always have a monthly car payment but will never own a car. Buying your vehicle off-lease means you’ll own the car once it’s paid off. And a paid off car means no more car payments.
- There are no mileage limits. When you lease a vehicle, you sign an agreement not to exceed a certain number of miles. That may hold you back from planning your next family road trip, or it can leave you with a hefty mileage penalty at the end of your lease term. When you purchase your vehicle off lease, you can drive it as much as you’d like without having to worry about the odometer reading.
- You can sell it at any time. 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 vehicle, or it no longer meets the needs of your family, turning the car in can lead to early termination fees. That’s not something you need to worry about when purchasing an off lease vehicle. You’ll have the freedom to sell your car whenever you’d like.
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 on which option is right for you. If you’re still on the fence, these questions can help you decide:
- Do you really want the car? As you read through this list, you may have noticed that there are a lot of financial factors that impact whether buying your car off lease is a wise choice. But if you don’t absolutely love your car, 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 settled on a “residual value” of what your vehicle would be worth at the end of the lease term. When it’s time to turn in your car, that value is essentially your buyout amount, or the price you’ll pay for your vehicle. If you’re considering buying your car off lease, start by checking the prices of similar vehicles. You can use an appraisal tool like Kelley Blue Book® or check the listed prices of comparable cars online. Is the residual value a good deal? If not, it may be worthwhile to purchase or lease another vehicle.
- Is it reliable? As mentioned above, lease terms typically correspond with the end of a vehicle’s factory warranty. That means unless you buy another extended warranty, you’ll be paying out-of-pocket for the costs of repairs and maintenance moving forward. If your car has a strong reputation for reliability and hasn’t given you any problems during your lease period, you may have nothing to worry about. But if it’s required frequent visits to the repair shop, keep that in mind when you make your decision.
- Will you owe extra when turning in your lease? Exceeding your mileage limit or causing excessive wear and tear to your vehicle during the lease period can result in some hefty fees when you turn in your car. But you won’t have to pay those fees if you purchase it off lease. Take another look at your lease agreement and do the math before you enter the dealership. If you’re expecting to owe thousands of dollars in penalties, buying your vehicle 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, it will pay to do your homework ahead of time since your interest rate and loan availability will depend on your credit score and income. Shop around at your bank or local credit union to make sure you can get approved and see what type of interest rate you can get.
- Can you afford the payment? If you’ve determined you can get financing, calculate what your monthly car payment will be. Although you’re buying a used car, your monthly payment will almost certainly cost more than you were paying for your lease. That’s because your lease only covered the depreciation of the vehicle, and you’ll be financing the whole thing if you choose to buy.
Protect Your Ride
If you do decide to buy or lease a new vehicle, it will lose some of its value the minute you drive it off the lot. But that doesn’t mean your insurance coverage should take a hit, too.
Talk to your local ERIE agent to learn more about auto insurance or get a quote to see the ERIE difference for yourself.
ERIE® insurance products and services are provided by one or more of the following insurers: Erie Insurance Exchange, Erie Insurance Company, Erie Insurance Property & Casualty Company, Flagship City Insurance Company and Erie Family Life Insurance Company (home offices: Erie, Pennsylvania) or Erie Insurance Company of New York (home office: Rochester, New York). The companies within the Erie Insurance Group are not licensed to operate in all states. Refer to the company licensure and states of operation information.
The insurance products and rates, if applicable, described in this blog are in effect as of July 2022 and may be changed at any time.
Insurance products are subject to terms, conditions and exclusions not described in this blog. The policy contains the specific details of the coverages, terms, conditions and exclusions.
The insurance products and services described in this blog are not offered in all states. ERIE life insurance and annuity products are not available in New York. ERIE Medicare supplement products are not available in the District of Columbia or New York. ERIE long term care products are not available in the District of Columbia and New York.
Eligibility will be determined at the time of application based upon applicable underwriting guidelines and rules in effect at that time.
Your ERIE agent can offer you practical guidance and answer questions you may have before you buy.
A better insurance experience starts with ERIE.
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Contact Hemp Insurance Agency today to experience the ERIE difference for yourself.