A buddy of mine recently leased a new car, I think its been a month or two, maybe three. He’s very pleased with his ne car, and now kind of wishes or at least wonders if he should have purchased it instead. Is this something that he could take care of now, or is he pretty much stuck paying monthly until his lease is up in 3 years? I do know he’ll probably end up way below his mileage, does that affect this at all? Is it at all common, or even possible, for someone to purchase a car in this way? Assuming this does happen, is it generally a good idea or a smart transaction?
We bought out our lease after the first year - we went to our credit union and arranged for the loan and they took care of all the paperwork and title transfer. We never leased again - we always purchased. Leasing never made sense for us.
I have heard the money guys at both dealerships and car companies say that buying a car at the end of a lease is a very bad idea from a dollar and cents point of view.
You borrow money when you lease a car and then when the lease is up, you are going to borrow that money all over again to buy the car.
Congratulations, you have just achieved compound interest. Your bank loves you.
Read the lease, there are very likely prepayment penalties that make it financially prohibitive to buy out the lease. Whether to buy at the end depends on the asking price vs. the retail value.
I can’t think of one reason that makes leasing financially advantageous. The only leasing situation I know of that makes some sense, is if money is not an issue and you want to get a new model every few years w/o the hassle of trade ins and buying.
I’m a money girl at a dealership. The only two reasons you should consider purchasing your vehicle at the end of your lease is if you have gone way over on your mileage and you are looking at a large overage fee, or if your car is worth more than your guaranteed end of lease purchase price.
As far as converting a lease over to a purchase, he would need to call and find out what his payoff is then see if he can get a loan on the car for that amount. It will probably be difficult because the biggest depreciation hit is in the first year (basically as soon as it’s driven off the lot). If his residual was fairly high, say over 55% in a 3 year lease, it would probably make more sense to continue the lease then drop it off at the end and purchase the next car.
Leasing has both advantages and disadvantages. People who know what their annual mileage is (10-12K) and know it is not likely to change during the lease, people who typically trade every 2-3 years (yes, there are people like that out there), or people who want to drive more car than they can really afford are good candidates for leasing. Leasing also breaks the negative equity cycle that a lot of folks find themselves in (especially if they trade too often).