What to do when your auto lease ends

What are your options when a car lease ends? Your next step is deciding to purchase, return or trade-in your vehicle. Here’s an overview of each option, plus some key things to consider before making a decision.

Tags: Cars, Loans, Planning
Published: April 28, 2021

The end of your car lease can sneak up quickly. You probably received a letter from your lender or an email asking whether you plan to purchase, return or trade your car. If the news came as a surprise, don’t worry. Now’s the perfect time to pull out your lease agreement and hop online for some research. First, examine your situation in detail and answer these key questions. 

1. What will it cost to buy your car from your lender? When your lender crafted the lease agreement, they predicted the value of your car at the lease’s end. In other words, they estimated the price your car would cost today. Known as the purchase option price, this is the cost you will pay to buy your car from your lender. You can find the purchase option price in your lease agreement.

2. What’s the market value of your car? This is the cost of purchasing your car in the current auto market. To determine the market value, try an online resource like Kelley Blue Book®, Autotrader or Edmunds®. You can also contact a dealer directly to get a price estimate.

3. Is your car in good shape? If your car has scratches, stains or significant damages, you can be charged accordingly. Get your car inspected, record your mileage and review the terms of your lease agreement so you’re aware of potential fees. Consider making repairs to save on fees if you plan to return your vehicle.

4. Is it the right car for you?  Finances aside, the decision to purchase or return your car may come down to your personal preference. Take time to determine if your current car still meets your needs, or if another vehicle may be a better fit.

With these key questions answered, let’s dive into the details of purchasing, returning and trading your vehicle. 

Purchasing your car

If you like your car, purchasing it from your lender can be a great option. It’s ideal when the purchase option price – the cost of buying from your lender – is less than or equal to the price you’d pay at a dealership (i.e., market value).

Purchase option price ≤  Market value = Consider purchasing from your lender

Purchasing from your lender can save you the time and hassle of returning your car and buying a new one from a dealership. And you may even save money. For example, if your purchase option price is $10,000 and the market value is $15,000, you could save $5,000 by purchasing from your lender.

Returning your car

The decision to return your car depends on price and personal preference. If your car no longer fits your needs, you can return it to your lender and move on. This can usually be done with little to no cost, especially if your car is in good condition. You will be charged fees for damages and excess mileage, so be sure to review the terms of your lease agreement and get your car inspected thoroughly.

Sometimes the decision to return or purchase simply comes down to the numbers. You may love your car but still decide to return it if your purchase option price is higher than the market value.

Purchase option price > Market value = Consider returning your vehicle

In this scenario, buying from your lender is the most expensive option. You may ultimately save money by returning your car and purchasing a new one at dealership prices. However, be sure to factor potential fees into your cost analysis.

Trading your car in at a dealership

Trading with a dealership lets you exchange your old car for a new one. The dealership will buy your car from the lender, then resell it at market value. Meanwhile, you’re free to buy a new car from the dealer without the hassle of returning your old vehicle. Seems simple, right?

Unfortunately, dealers are only willing to pay so much for your leased car. They pay what’s known as the “trade-in value” – an amount determined by the dealer’s valuation of your vehicle. This amount may or may not cover the amount owed to your lender (i.e., the purchase option price).

Trading is a good decision if the purchase price is less than or equal to the trade-in value. In this scenario, the dealer pays the full amount owed to your lender. And you may even have savings to put toward buying your new vehicle.

Purchase option price ≤ Trade-in value = Consider trading your vehicle

More commonly, the trade-in value will be lower than the purchase option price. Trading in that scenario results in you owing money to your dealer. For example, if your purchase option price is $20,000, and the trade-in value is $15,000, you will need to pay your dealer $5,000 to cover what’s left of the purchase option price. For that reason, it’s often cheaper to simply return your car and then buy a new vehicle at market value.

Other considerations

Now that you understand the basics, don’t be afraid to call your lender to discuss your unique situation. If you need extra time to think things through, consider extending your lease. You will pay for extra months, but it may be worthwhile to avoid rushing through the process. Whatever you decide, you can feel confident knowing you’ve made an informed decision. 

Ready to take the next step after your auto lease ends? Learn more about auto loans and financing here, or book an appointment and speak with one of our bankers.