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I have a leased 2014 Toyota vehicle which the term will be up in 1 month. I am now aware of the financial burden lease vehicles can bring and I am ready to move forward and begin to actually purchase a vehicle I can afford. Does it make financial sense to purchase the vehicle if the residual value is only a thousand dollars more than the actual value? I should add the vehicle does have an over mileage of about 15k, the price per over mileage is .15 cents, the vehicle is still in good condition and I recently purchased a new set of tires which are a cheaper brand then vehicles original. The residual value plus estimated tax and license is about the same value as my budget for a new vehicle. Should I give the car back, pay whatever fees I owe and start over again with a new vehicle, or should I just purchase the lease for the estimated amount?
There are at least three items to keep in mind when deciding whether to purchase your leased vehicle, lease another vehicle, or purchase a new car.
Residual Value vs Market Value
If you’re going to keep the leased vehicle you want to pay as close to, less than, or at the market value for the vehicle. To determine your car’s value, check out sources like Kelley Blue Book, or Edmunds (Edmunds has a free tool). Your assessment should include the fees you’ll have to pay. Overall, if your residual amount (or purchase-option price) is less than or near the private-party price (market or re-sell value), buying your lease vehicle may be a good deal. I’m not sure a few thousand dollars is “close.” Therefore, I’d consider a few additional factors to best inform your decision:
- Most lease deals offer bumper-to-bumper warranties. It sounds like you haven’t but if you face any major car repairs in the near future, they will be out of pocket. If you’re learning towards purchasing, you may still be covered by the factory warranty. If so, you can have the vehicle looked at and possibly repair covered items at little or no cost before the lease ends.
- See if your leasing agent is willing to offer any sale/purchase incentives. They have a vested interest in selling you the car versus the hassle of putting it back on the market. Therefore, they might be interested in dealing or reaching a more reasonable deal that benefits you. For example, they may waive or lower some fees to more closely align with the market value. You have everything to gain and nothing to lose by asking.
- Visit your local credit unions in person or online to price “lease buyout” options. This is essentially a refinance but it might offer a lower APR than your dealer while also providing you with a bargaining tool if they want to extend a higher-rate loan. I recommend credit unions because they tend to offer better deals than banks in these scenarios. Keep in mind, this process might require a hard credit check. For the best rates, you’ll want to have a credit score of at least 730+.
Current Mileage and Mileage Overage Fees
In most scenarios, agreeing to purchase the vehicle will waive the mileage overage penalty you mentioned. Specific to your question, we should also keep in mind that Toyota’s are reliable vehicles and it sounds like you’ve taken good care of the car. Toyotas also tend to hold their value for if or when you trade the vehicle in the future. In full disclosure, I say this as someone who previously owned a used Toyota Camry for 10 years and I still managed to put 180,000 miles on it with only basic maintenance and care.
Regarding your budget for a new vehicle: if you can pay cash, this is the best route.
I’m unclear if you’re saying you have the budget to make monthly payments or the budget to pay cash for a new vehicle. In either scenario, if you can walk away without a car payment (whether that’s paying off the leased vehicle or purchasing a new car) you should. Regarding a new car purchase, a simple rule to help with your decision may be: if you can’t pay off a new car with in cash or with a 36-month loan, then you should stick with your current vehicle. You’ll likely pay this car off sooner. Speaking from my own experience, there is nothing like not having a monthly car payment. If you’re not sure how much monthly payments will be compared to your lease, use an “Auto Loan Calculator” to estimate the difference.