Business

Buying out a lease can have its advantages

300 dpi 2 col x 7 in / 96x178 mm / 327x605 pixels Bonnie Trafelet photo illustration of a hand holding a keychain with options to lease or buy. Chicago Tribune 2004


KEYWORDS: krtbusiness business krtnational national krtauto auto automobile car krtnamer north america krtusbusiness u.s. us united states krt carlease coddington grabado illustration ilustracion new car truck lease leases leasing popely tb contributed trafelet coddington 2004 new purchase buy krt2004
300 dpi 2 col x 7 in / 96x178 mm / 327x605 pixels Bonnie Trafelet photo illustration of a hand holding a keychain with options to lease or buy. Chicago Tribune 2004 KEYWORDS: krtbusiness business krtnational national krtauto auto automobile car krtnamer north america krtusbusiness u.s. us united states krt carlease coddington grabado illustration ilustracion new car truck lease leases leasing popely tb contributed trafelet coddington 2004 new purchase buy krt2004 KRT

People who lease vehicles are confronted with a decision after a few years of ownership. Do I give back the car after the contractual lease period ends, or do I buy it?

The decision can spawn uncertainty and angst. And it's more relevant today than ever because of low buyout prices written into lease contracts several years ago versus today's higher used-vehicle prices. The result is that many consumers will discover that they can buy their leased car for less than market value. That makes it a financially good idea to buy the vehicle, even if they only want to resell it and pocket the difference.

If your goal is to spend less money on vehicles, personal finance experts almost universally advise against leasing, compared with buying a vehicle and keeping it a long time. Still, about 43 percent of luxury cars and 18 percent of mainstream cars will be leased over the next couple of years, according to estimates by ALG, a data provider of leasing values to the automotive industry.

Here are factors to consider if you're thinking about buying out a lease.

Buyout price: This is the predetermined price that you agreed to pay if you wanted to buy the car at the lease's end. In theory, the dollar figure represents the unused value of the vehicle when the lease term expires.

Market price: Find out what your vehicle is really worth. Go to the Web sites KBB.com, Edmunds.com or Nadaguides.com. Look up current market values — retail prices — for your exact model, plugging in mileage and the vehicle's options. You also can see retail prices at online marketplaces Cars.com and Autotrader.com.

Compare: How close are the buyout price and the market price? The main question you're trying to answer is, "Could I buy this exact vehicle as a used car for less money than my buyout price?"

"Just make a comparison to see how it stacks up," said Ronald Montoya, a consumer-advice associate with Edmunds.com. If you're going to "flip" the vehicle — buy it and resell it yourself — compare the buyout price to private-party or trade-in values. If you'll make money on the deal, consider whether it's enough to endure the hassle of selling it yourself.

Penalties: Include the calculations any penalties you might incur because you've exceeded the mileage limit or because the vehicle has excessive wear and tear. This is money you have to pay if you return the car but would not have to pay if you bought the car. On the other hand, excessive miles and wear reduces a vehicle's value, meaning the car you're buying could be worth somewhat less than the residual value, which assumes no excessive miles and wear.

Care: Perhaps the most difficult factor to assess is your peace of mind. How much is it worth to know a vehicle's driving and maintenance history? "This is a great way to get a used car because you don't have to worry about a car's history. You're the one who owned it," Montoya said. "Even if it costs a little more, it's less of a risk than buying in the used market."

Try to negotiate: Contact your leasing company — not the dealer — and ask whether they will lower the buyout price. Unfortunately, few leasing companies will allow you to haggle, but "it's definitely worth asking the question," Montoya said.

Hassle factor: Buying out a lease allows you to avoid the time-consuming task of car shopping, although you will have to arrange financing if you can't pay cash. Check loan rates with your leasing company — often a bank — which might be able to arrange financing and reduce paperwork because it already has a relationship with you, said Eric Lyman, spokesman for ALG.

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