At the end of their lease, many people turn in that old vehicle and lease another one. They like driving something new––and when they see the residual amount (the predetermined purchase price), it doesn’t make any economic sense to buy that old ride.

The pandemic has changed that economic equation, at least for now.

Listen to audio highlights of the story below:

With used car prices up nearly 25 percent since September of 2020, according to the Manheim Index, the market value of vehicles coming off lease right now is often well above the residual set by the finance company two or three years ago. As a result, you may find that buying your vehicle as it comes off lease will result in a sizeable windfall.

Eric Steinmetzer of Seattle was “excited and delighted” to find out how much things have changed when the lease on his 2018 Cadillac Escalade ended recently. The residual value, which had been set three years earlier, was so much lower than the value of vehicle today, he decided to buy the car.

“So, instead of looking for another lease, as I’d normally do, I just went ahead and financed my car because of the great value it had,” Steinmetzer said. “I was able to stay in a great car that I loved, and I lowered my payments by $500 a month. It was free money.”

Steinmetzer had leased his Escalade from Brotherton Cadillac in Seattle. Owner Brad Brotherton told Checkbook he’s never seen the car market like this.

“The new cars have gotten really expensive, and the residual values on the cars that were leased three years ago haven’t caught up,” he said. “The guaranteed residual value that we set at the start of the lease is often lower than what that vehicle is worth in today’s market.”

If the residual value is more than the market value, but the customer still wants to turn in their leased vehicle, Brotherton will apply that equity towards the purchase or lease of another vehicle, or write them a check for the difference, and put the car on the lot.

Some dealers are so desperate for used cars, they’re letting customers turn in their cars before the end of the lease without paying an early-termination penalty.

You can get a rough idea of what your car is worth by checking Edmunds.com or Kelley Blue Book. When I bought a new car two years ago, and traded-in my old one, I got the best offer by taking the car to a dealer. With the current shortage of used cars, some dealers are paying top-dollar for clean, well-maintained, low-mileage used vehicles.

Taking a U-Turn on Advice

Consumer advocates, including Checkbook, have consistently advised against leasing a new vehicle, (except for those who have specific business or tax reasons for doing it, or who buy a new car every two or three years), because over the long run leasing usually costs more than buying.

The advice hasn’t changed, but for those who already have a lease, auto experts are recommending––for the first time––that buying that vehicle could be a smart move.

“It usually doesn't work out to buy your leased vehicle, because the leasing company is always going to create the terms of the contract in their favor, but these are special circumstances,” said Ben Preston, a reporter with Consumer Reports Autos. “The price you pay on a lease buyback right now, because the price was calculated pre-pandemic, might be less than the market value of the car. So, if you were to buy that same car on the used car market, you’d probably pay significantly more for it.”

Jack Gillis, author of The Car Book, executive director of Consumer Federation of America, and member of Checkbook’s board of directors, points out that buying your car at the end of the lease reduces the risk of buying another used car with mechanical or safety issues.

“You know exactly what experience you had with that car,” Gillis told Checkbook. “If you’re buying another used car, you’re really buying a pig in a poke, because you really don’t know what experience [the previous] owner had. So, if that car has treated you well, and you like it, buy it and you could save yourself thousands of dollars.”

Leasing Doesn’t Make Economic Sense for Most People

It’s easy to understand why leasing is so appealing. The monthly payments are smaller than buying, the downpayment is typically less, and dealers offer a variety of incentives to lease.

This can help your cashflow or make it possible to drive a vehicle you couldn’t afford otherwise. Other benefits: The vehicle is always under warranty, you save money on the sales tax, and you don’t have to worry about selling the vehicle when it gets old.

But do the math, Gillis said, and you’ll see that leasing costs more. And that’s because you are paying for the rapid and significant deprecation that takes place when a new car drives off the lot.

“I always recommend buying the car versus leasing it––and especially today, because lease prices have gone up, and the residual values are now going up to reflect today’s superheated used car market,” Gillis said. “So, at the end of that lease in two or three years, if you wanted to buy that vehicle, it's going to be very expensive.”

There can also be “sticker shock” at the end of the lease if you’ve gone over your milage limit, or there’s more than normal wear and tear. “That's when it's going to cost you,” Gillis said.

Consumer Reports compared buying vs. leasing and concluded that as attractive as a lease may appear, there are a number of disadvantages. It “usually costs you more than an equivalent loan,” and  if you lease car after car (as many people do), your monthly payment goes on forever.  When you buy a car, the longer you own it after the loan is paid off, the more value you get out of it.

CR’s advice: “Over the long run, the cheapest way to drive is to buy a car and keep it until it’s uneconomical to repair.”

If you're in the market for a new car, but don’t need one right away, you might get a better price if you can wait until next spring. It may take that long for manufacturers to deal with the current production problems.

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Contributing editor Herb Weisbaum (“The ConsumerMan”) is an Emmy award-winning broadcaster and one of America's top consumer experts. He is also the consumer reporter for KOMO radio in Seattle. You can also find him on Facebook, Twitter, and at ConsumerMan.com.