For drivers who want a brand new vehicle, leasing is still a popular option. According to credit reporting company Experian, car leasing accounted for about 24% of new car purchases in 2021.
Leasing can be a good choice for those who want a low monthly payment, especially as vehicle prices continue to rise. But when your lease term is up, you have a decision to make: will you hand in your leased vehicle or buy it back from the leasing company?
If you’re nearing the end of a car lease, you may be wondering which option is right for you and which choice makes the most financial sense.
Unfortunately, there is no clear answer to this question. That’s because the best decision for you depends largely on your specific situation.
Here are some factors to consider when deciding whether to buy your car without a lease:
What are the advantages 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 the smell of new cars, or if you just enjoy upgrading every few years for the latest vehicle features and technology, leasing another vehicle may be right for you.
- Your payments are lower. Another advantage of leasing is the low monthly payment. When you lease a car, your payment is designed to cover only the depreciation of the vehicle, not its total value. The result is that you will spend less money each month.
- You have a guarantee. The lease terms on a new vehicle usually correspond to the vehicle’s factory warranty. This means that if something goes wrong during your lease, such as a mechanical fault, you don’t have to pay for the repairs.
- You don’t have to worry about reselling or haggling. Selling a used car can be stressful. And sometimes it’s not much easier to negotiate a trade-in value at the dealer. But when you turn in a leased vehicle, the process is relatively simple because you’ve already agreed to the terms of the lease before taking the keys.
What are the benefits of buying 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 tell you if it has ever been damaged in an accident. They may even display some maintenance logs. But there are still plenty of unknowns. On the other hand, when you buy your car from a lease agreement, there are no surprises because you’ve owned the vehicle since it was new.
- You will build equity. One downside to leasing vehicles continuously is that you 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. It could hold you back from planning your next family trip, or it could leave you with a hefty mileage charge at the end of your rental period. When you buy your vehicle without a lease, you can drive it as much as you want without worrying about the odometer.
- You can sell it at any time. When you sign a leasing agreement, you agree to keep your car for a certain number of years. If you later decide you don’t want the vehicle, or if it no longer meets your family’s needs, surrendering the car may result in early termination fees. That’s not something you need to worry about when you buy a car without a lease. You have the freedom to sell your car whenever you want.
Should I buy my car outside of leasing?
Now that you’ve considered the pros and cons of buying and leasing, you can make a more informed decision about 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 many financial factors that affect whether it is a wise choice to buy your car without a lease. But if you don’t absolutely love your car, or if it no longer meets your needs, these factors don’t matter.
- Does it make economic sense? When you originally signed your lease agreement, you decided on a “residual value” of what your vehicle would be worth at the end of the lease term. When it comes time to turn in your car, that value is essentially your buyout amount or the price you pay for your vehicle. If you are considering buying your car without a 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 residual value a good deal? If not, it may be worth buying or leasing another vehicle.
- Is it reliable? As mentioned above, lease terms usually correspond to the end of a vehicle’s factory warranty. This means that if you do not purchase another extended warranty, you will pay for the costs of repairs and maintenance in the future. If your car has a strong reputation for reliability and hasn’t given you any problems during your lease, you may have nothing to worry about. But if frequent visits to the workshop are required, keep that in mind when making your decision.
- Will you owe extra when you hand in your lease? Exceeding your mileage or causing excessive wear and tear on your vehicle during the lease term can result in some hefty fees when you return your car. But you don’t have to pay these fees if you buy it off-lease. Take another look at your lease and do the math before you walk into the dealership. If you expect 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 beforehand as your interest rate and loan availability will depend on your credit rating and income. Shop around at your bank or local credit union to make sure you can get approved and see what kind 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. Even if you buy a used car, your monthly payment will almost certainly cost more than you paid for your lease. This is because your lease only covered the depreciation of the vehicle, and you will finance it all if you choose to buy.
Protect your ride
If you 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 that your insurance cover will also suffer.
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 office: 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 do business in all states. See the company’s licensing and business information.
The insurance products and rates, if applicable, described in this blog are effective as of July 2022 and are subject to change at any time.
Insurance products are subject to conditions and exclusions not described in this blog. The policy contains the specific details of coverage, 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 on applicable underwriting guidelines and rules in effect at that time.
Your ERIE agent can offer you practical guidance and answer any questions you may have before you buy.