What Do I Do When My Car Lease Ends?

Ralph Estep Jr.:
00:00

So, here's the question for today. Do you have a car lease ending soon? Are you wondering what options you have and how to get the best deal? This was a question we received from one of our loyal listeners. So, stay tuned to the show to find out.

Ralph Estep Jr.:
00:16

Welcome back to another episode of the show. So, we're all about mastering your finances from a Christian perspective.

Ralph Estep Jr.:
00:22

As always, it's great to have you tuning in today. Now, yesterday we had a really important discussion about how to gently encourage adult children to leave the nest and gain their own independence. If you missed that episode, be sure to go back and listen.

Ralph Estep Jr.:
00:37

You can find all of our past episodes right at our website. And that's at askralphpodcast.com. And remember this, financial freedom starts with taking responsibility for our own lives.

Ralph Estep Jr.:
00:48

So, we need to teach our young adult children that as well.

Ralph Estep Jr.:
00:51

Now, today, we're talking about something else that affects a lot of families. And that's options when your car lease ends.

Ralph Estep Jr.:
00:57

A lot of people decide to lease cars and you really need to understand what happens at the end of that lease. So, the question is, what should you do when the lease is up?

Ralph Estep Jr.:
01:07

You have some options. I don't intend to cover them all today, but I have really 3 that I think are the main ones. And that is, you can buy it, you can turn it in, or get another lease.

Ralph Estep Jr.:
01:17

And I'm going to walk you through the pros and cons so you can make the best choice.

Ralph Estep Jr.:
01:21

Now, tomorrow, we'll be talking about retirement from a faith perspective.

Ralph Estep Jr.:
01:26

And how many people have fear of that. So, we're going to talk about how we can overcome the fear of letting go that steady paycheck and trusting God to provide.

Ralph Estep Jr.:
01:36

That's not easy for people. So, I'm looking forward to tackling that topic. So be sure to subscribe to the show and don't miss tomorrow's show.

Ralph Estep Jr.:
01:43

Well, I'd like to ground our financial discussions in some biblical wisdom. We're going to talk about Proverbs chapter 16, verse 9. It says this. "A man's heart plans his way, but the Lord directs his steps."

Ralph Estep Jr.:
01:58

Are you allowing the Lord to direct your steps? Well, that's what I'm going to encourage you to do today.

Ralph Estep Jr.:
02:03

As we look at what to do when your lease ends, make plans and do research.

Ralph Estep Jr.:
02:08

But you've got to ultimately trust that God will guide you to the right decision. Seek him first and he will lead you on the right path.

Ralph Estep Jr.:
02:19

So, all right, you've made it to the end of your auto lease. And like I said, you really have three main options, in my opinion. And that's number one, turn in the leased car.

Ralph Estep Jr.:
02:28

You basically take it back to the auto dealer or whatever the name brand that you bought. Make arrangements to turn it back in.

Ralph Estep Jr.:
02:36

The next thing you can do is you've already got the car. You can actually purchase it or buy out the lease. And the third thing you can do is lease another car and there are other options, but I wanted to cover those three today.

Ralph Estep Jr.:
02:47

So, let's look at the pros and cons of each of those choices.

Ralph Estep Jr.:
02:50

Let's start with the first one. If you decide to turn in your leased car. Well, here's the benefit to that. You're done with car payments and your responsibility ends. It's the opportunity to get a new car.

Ralph Estep Jr.:
03:01

Maybe you got something cool in mind, or you want a new color or a different brand altogether.

Ralph Estep Jr.:
03:06

The cons to that are there could be a disposition fee for turning it in. That's what we're going to talk about when you got that lease, what was that mileage that you allowed for?

Ralph Estep Jr.:
03:15

The whole lease is based on whether you're under or over those mileage.

Ralph Estep Jr.:
03:19

So, if you've gone over those miles, there's going to be a fee that you're going to have to take and pay if you'd want to just turn it in.

Ralph Estep Jr.:
03:27

The other con to doing this is you start over with a brand-new car with zero equity. But again, you walk away from it, pay the disposition fee, if there is any, and then go find something new.

Ralph Estep Jr.:
03:39

Now option number two, we're going to talk about is buying out your leased car.

Ralph Estep Jr.:
03:44

Now the pros to this are there's no need to shop for a different car. It's already yours. You've already been leasing it or renting it, whatever you want to call it.

Ralph Estep Jr.:
03:52

You've built up equity, if you're under your mileage, which basically lowers that purchase price, and you skip that disposition fee altogether.

Ralph Estep Jr.:
04:00

So, if you're over mileage, this may be the best option, so you're not writing a check. Now, there are some cons to that, though. Now you're going to still have a car payment.

Ralph Estep Jr.:
04:10

You know, maybe you did a two- or three-year lease.

Ralph Estep Jr.:
04:12

You've been paying on that car for three years. And now you've got that residual. You're going to pay it off, but you're going to have to get a loan for that.

Ralph Estep Jr.:
04:19

So, you got to have another time for car payments, maybe that's 24, 48, or even 60 months.

Ralph Estep Jr.:
04:25

The other con to this is there's limited negotiation on the purchase price. They've got that residual value in any disposition fees, and that's what you're going to pay.

Ralph Estep Jr.:
04:34

Now the third option is leasing another car. This is kind of a cool option because you always have a new car.

Ralph Estep Jr.:
04:40

Maybe there'll be lower monthly payments than buying a car because you could always make a decision.

Ralph Estep Jr.:
04:43

Look, I'm not going to lease it all this time around. I'm going to go right into purchasing it. Now the cons to do that, is you never really build up equity. You're basically renting a vehicle.

Ralph Estep Jr.:
04:53

And whenever that lease is up, you write the new one. Now a lot of people love that because they've got that new car every two years, maybe every three years.

Ralph Estep Jr.:
05:02

And then the only thing you gotta be worried about is it was turning cost at the end of every lease, if you've gone over mileage or if there's, you know, unusual wear and tear.

Ralph Estep Jr.:
05:10

So, you might ask Ralph, which option is best? I don't know that I have a great answer, but here are my tips for that.

Ralph Estep Jr.:
05:16

If your goal is to stop having a monthly car payment, then go ahead and purchase your lease car.

Ralph Estep Jr.:
05:21

Just be sure to negotiate a fair price based on the car's residual value and the mileage.

Ralph Estep Jr.:
05:27

Buying allows you to capitalize on it and build up equity.

Ralph Estep Jr.:
05:29

And the truth is, we could have started this discussion with, should you have leased in the first place?

Ralph Estep Jr.:
05:34

If you're somebody that keeps a car forever, you know, you keep that car 10, 12, 15 years, probably not a wise choice to lease at the front end.

Ralph Estep Jr.:
05:43

I did talk about this on a show a few weeks ago. So, you might want to go back and listen to that.

Ralph Estep Jr.:
05:47

But if you're somebody who really wants to get a new car, you know, you're going to have about the same mileage every year, then may be a lease is a good option for you.

Ralph Estep Jr.:
05:56

Now, if you always want a new car with lower payments, leasing may be the way to go in this situation.

Ralph Estep Jr.:
06:01

Just be prepared to keep starting over with no equity each time and factor in those unusual wear and tear and over mileage disposition fees.

Ralph Estep Jr.:
06:11

Now, if you're open to something different, you could turn in your lease car and shop for the best deal on a new purchase.

Ralph Estep Jr.:
06:16

Just know you'll have to go through the buying process again. Now for most people, I recommend buying your leased car if you can get a good price.

Ralph Estep Jr.:
06:23

That allows you to keep and benefit from the equity you build up. And the truth is, you know what maintenance was done, you know with about new tires, you know about any wear and tear on that car.

Ralph Estep Jr.:
06:34

You've been driving it for the time of the lease. So, you really know about that car.

Ralph Estep Jr.:
06:38

So here are some specific action steps, and these are very important. You've got to research the residual value and pay off amount in your lease paperwork.

Ralph Estep Jr.:
06:47

Go back and pull that paperwork. At the time you signed for that lease, they propose what the residual value was going to be. And that's what the whole lease was based on. It basically is no more complicated than, Hey, here's the purchase price. Here's the residual value.

Ralph Estep Jr.:
07:02

The difference between those two things, plus some interest was your monthly lease payment.

Ralph Estep Jr.:
07:08

But you need to know what that is, because then you've got to go and look at the market and say, okay, the residual issues, a simple example, let's say you leased a Toyota, right?

Ralph Estep Jr.:
07:16

And you did a two-year lease. And when you did this two-year lease, you agreed that the residual value will be $25,000 at the end of the lease.

Ralph Estep Jr.:
07:24

So, you pulled your paperwork, you see it's 25,000. You go to the dealer and they tell you, oh, you know what? That car is worth 20,000.

Ralph Estep Jr.:
07:31

Well, you're not going to want to buy that out because look, you can go buy a new car for less price. But let's use a different example.

Ralph Estep Jr.:
07:40

Let's say you go back to that deal, you know your residual's 25 and they say, hey, you know what? The fair market value of that car is 30,000 now.

Ralph Estep Jr.:
07:47

Well, that might be a great time to buy because you've got that $5,000 built in it. But that's another part of doing your research and understanding what's going on in the market.

Ralph Estep Jr.:
07:56

Remember, praying about big purchases like this is so important. I can't stress this enough. Ask God to guide you to the right decision for your particular situation. He knows what vehicle and financial path will bless you the most.

Ralph Estep Jr.:
08:00

You also want to have your car inspected and determine its market value.

Ralph Estep Jr.:
08:00

Make sure they're not going to ding you for any over mileage or any unusual wear and tear.

Ralph Estep Jr.:
08:05

And then you negotiate the purchase price based on the market value, not that predetermined residual value. And of course, you've got to get pre-approved financing if it's needed.

Ralph Estep Jr.:
08:14

So, following these steps allows you to maximize the equity in your lease vehicle. You gain an asset instead of starting over again.

Ralph Estep Jr.:
08:22

All right. Let's do a quick recap of what we covered today. At the end of your auto lease, you can turn in the car, you can purchase it, or you can lease another car.

Ralph Estep Jr.:
08:44

Purchasing your leased car allows you to gain an asset by using the equity you build up and again, remember, do your research and understand what the value is versus the residual value.

Ralph Estep Jr.:
08:54

Negotiate the buyout price based on the cars market value. So were just talking about not some predetermined residual. If you.

Ralph Estep Jr.:
09:00

If lower payments, are you goal, leasing may be the best option. And no matter what, in all things financial, and all things life, pray about the decision and trust God to direct your steps.

Ralph Estep Jr.:
09:12

Well, that's all we have time for this episode. I hope you now feel equipped to make the best decision when your auto lease ends. As always, be sure to visit askralphpodcast.com to access all of our resources and join our email list.

Ralph Estep Jr.:
09:26

I'm going to ask you for a big favor. Share this episode with a friend or family member who might need advice on their expiring car lease.

Ralph Estep Jr.:
09:33

Maybe they're even considering doing a lease and you might want to share this with them so they can understand what happens at the end of that lease.

Ralph Estep Jr.:
09:39

And please come back tomorrow as we talk about retirement from a faith perspective. And as I always say my friends, stay financially savvy, and God bless you today.