At the end of a vehicle lease, you have several options: buying out the vehicle, returning it to the dealership, or leasing or purchasing a new vehicle. This decision depends on several factors, including the vehicle’s condition, mileage, and buyout value. Here are the key scenarios to help you choose the best option for your situation.
You’re better off returning your leased car if…
Your car was seriously damaged during your lease term. It is often better to return it to the leasing company (the manufacturer’s financing arm), who will absorb the loss in value caused by the accident.
When is a leased vehicle buyout a good idea?
A buyout can be a smart move in two situations:
You’ve exceeded the mileage limit in your lease.
Or, on the other hand, your mileage is reasonable, the vehicle is reliable, you’re happy with it, and it still meets your needs.
It’s an appealing option, especially since you know the vehicle’s history. A lease-end inspection can help you make your decision.
Lease-end vehicle inspection: What to expect
Three months before the lease end date, the dealer is required by law to offer you a free inspection. If you accept, it will be carried out between 30 and 60 days before you return the vehicle, and you will receive a written report. You can also have the vehicle inspected at your own expense at a shop of your choice, such as a CAA-Quebec Authorized Vehicle Inspection Centre.
Vehicle return fees: When do they apply and how can you reduce them?
When returning a leased vehicle, additional fees may apply for:
Excessive wear and tear: Significant dents, major scratches, a damaged windshield, scuffed rims, or a deteriorated interior. Normal wear and tear generally includes worn tires, minor scuffs, and worn brake pads. Each manufacturer sets its own standards.
Did you know?
If you purchased excess wear and tear protection when you signed your lease, some of these charges may be covered. Offered by many dealerships, this protection costs around $750 and often covers up to $3500 in repair costs beyond normal wear.
Excess mileage over the lease allowance: Additional charges apply based on the rate set out in your contract. Buying out the vehicle is one way to avoid these fees—provided the residual value makes it worthwhile.
What is the residual value of a leased vehicle?
The residual value is the amount you must pay at the end of the lease to become the owner of the vehicle. It is set when you sign the lease. If the residual value is lower than the market value (the vehicle’s price on the used car market), buying it out may be a smart move.
Financing a leased vehicle buyout is typically done at used vehicle interest rates, which are often higher than those for a new vehicle. Your monthly payments may therefore increase! Choose the shortest term that works for you.
In Quebec, taxes—GST and QST—apply to the residual value when buying out a car lease. In addition, the lessor generally charges a buyout fee, which must be specified in the lease agreement.
Tip: Compare the rate offered by the dealership with your home equity line of credit rate, if you have one.
Buying out a leased vehicle to resell it: Is it worth it?
Yes, it’s possible. Certain highly sought-after used vehicle models—those with low mileage or a reputation for reliability—can generate a healthy profit.
To assess the market, browse online listings. In some cases, the dealership may also make you an offer if you lease a new model from them.
Expert’s insight
“If you sell the vehicle yourself, avoid putting the proceeds as a down payment on a new lease. In the event of a total loss or theft, that amount could be lost. It is better to use it to gradually reduce your payments or to set it aside in savings.”
Leasing a new vehicle can be advantageous in several situations, including when the dealership covers some of the excess wear and tear charges on your previous vehicle.
Signing a new lease also lets you benefit from:
Generally lower monthly payments than buying
Manufacturer’s warranty
A new model every 3 or 4 years
There are, however, some constraints:
Mileage cap
Wear and tear standards to meet
No modifications allowed
Should you notify your dealership of your plans?
Yes, it is recommended. Dealerships often contact their clients a few months before the lease end to find out their plans and manage vehicle availability. Giving them advance notice makes it easier to transition to a new vehicle or wrap up the lease.
What if your dealership wants to buy out your lease early?
A dealership may offer to buy out your lease before the end of the term in order to get you into a new vehicle.
Before accepting, make sure the amount offered fully covers your remaining lease payments. Be careful to avoid negative equity—that is, rolling part of your debt into your next vehicle.
Auto insurance: Don’t forget to update your file
Whatever you decide, notify your insurance agent or broker to update your car insurance file.
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