At the end of a typical lease, there are a number of options available to you. We've outlined some of the most common options below.
Although following this course is relatively hassle-free, there are usually costs associated with this process. These costs, payable to the leasing company, include certain termination fees that may be applicable to your lease as well as any wear-and-tear expenditures applicable to your vehicle. Also, penalties due to any mileage limitations you may have exceeded during the lifetime of your lease will apply.
With this option, you first purchase the vehicle from the lessor (including any purchase option fees, applicable sales tax, and any other related costs). Then you sell the vehicle and keep any profit for yourself.
In some cases, it's possible for you to extend your existing vehicle lease. Most people choose this option when they're not quite sure what to do with their leased vehicle at the end of the contract in essence, they extend the lease to buy themselves some time before they make a decision. In most cases, it's possible for you to make the same monthly payments while extending the contract for a limited period of time.
Another option is to purchase the vehicle for its residual value. The residual value is basically the depreciated value of the vehicle over the lifetime of the lease. In some situations, the vehicle's residual value may actually be lower than the current book value, which means you'd probably be purchasing your vehicle for less money than you would if you bought the car from a dealer or an independent third party.
If you've built equity by keeping the vehicle maintained and in good condition, if the car has low miles with no associated overage penalties, and if the residual value (or buy-out price) is less than the fair market value, you might want to consider trading it in for something new.
When you re-lease your existing vehicle, you begin what's considered a used-car lease. Used-car leasing has its pluses and minuses:
- Your monthly payments are lower
- You're familiar with the car's history, including its mechanical soundness and reliability
- You avoid the hassles often associated with shopping for a new car.
- Lenders consider used vehicles more of a risk than new vehicles, and usually charge a higher money factor (or interest rate) to re-lease them.