Leasing can sometimes give you more flexibility than if you’d straight-out bought a car. You don’t necessarily have to deal with depreciation, and you could possibly turn a profit when your lease is up.
What happens when my car lease is up?
When your car lease is up, the car is no longer yours. But there are several directions you can go in to either upgrade or even keep the vehicle:
Most dealerships allow you to extend your lease if you’re not quite ready to give it up. You can often get the same or similar terms if you’ve made on-time payments and kept the car in relatively good condition.
Some dealerships might also offer discounts for lease extensions. These might be tempting, but sometimes they can be too good to be true. Make sure you’re actually getting a good deal by checking the value of your car with a site like Canadian Black Book or Auto Trader Canada.
Best for: Sticking with the same car without having to buy it
Who is most likely to be researching what happens at the end of a car lease?
Finder data suggests that men aged 25-34 are most likely to be researching this topic.
Response
Male (%)
Female (%)
65+
4.33%
2.98%
55-64
7.94%
4.33%
45-54
11.27%
5.95%
35-44
12.71%
7.21%
25-34
17.67%
9.83%
18-24
10.10%
5.68%
Source: Finder sample of 1,109 visitors using demographics data from Google Analytics
Option 2: Buy the car
Leases often come with the option to buy the car at the end. Typically, you can do this by making an extra balloon payment. How much you pay depends on the remaining payments you had left on the lease — if any — and your vehicle’s residual value.
If you decide to buy the car, you have two options: keep the vehicle or sell it. If you want to keep the vehicle, you can cover that balloon payment with a lease buyout loan. Or you can sell it and use those funds to cover the buyout cost.
Best for: Keeping your car or selling it to make a profit
You can sell your car before or after you’ve bought it, depending on who you’re selling it to. You can either trade it in for a new car at a dealership or sell it to a private party. Working with a dealership often requires less work on your end, but you might not make as much money off the deal.
Before you decide to buy the car and sell it, check its value. If it’s worth more than the cost of your buyout, you can actually make a profit by selling it. Otherwise, you could end up losing money and may want to consider other options.
Sell it to a dealership
Selling your car at a dealership is often a more hands-off experience. After agreeing on a price, the lender typically buys your contract directly from the leasing company and gives you a check for any remaining value.
Generally, dealerships buy cars at the trade-in value. The trade-in value is lower than what you’d make with a private party, but you typically don’t have to pay sales tax.
Sell it to a private party
The process of selling your car to a private individual varies depending on where you live. You can either pay off the lease and then sell your car online through a site like Kijiji Autos, or you can use the funds from the sale to cover the payoff amount.
Typically, you’ll make more money by selling your car to a private party, but you’ll likely have to pay sales tax.
Option 3: Trade it in for another lease
Trading in your lease can be the path of least resistance. You can often roll your lease into a new one even before your lease is up or when it expires. Trading it in for a less expensive vehicle can lower your lease payment. Or you can get a more expensive vehicle if your transportation needs have changed — like if you started a family and need the extra space.
The downside is you might have to pay an early exit fee. This could be a flat fee, a fee for the amount your car’s value depreciated during the lease or a combination of the two. Typically, it can set you back several hundred dollars.
Best for: Getting a new car before or after your lease is up
Take advantage of a lease pull-ahead
A lease pull-ahead is a great way to saving on your current lease by getting into a new one early. A lease pull-ahead is when a dealership waives the last three payments on a lease if you take out a new one with them. It’s an incentive offer designed to keep you as a customer and move certain vehicles off the lot. This offer is usually only available a few times a year.
Aside from skipping out on the last three payments, you typically don’t have to pay for going over your kilometre limit if you drove more than expected.
Option 4: Trade it in for a new car (get a dealership buyout)
Some dealerships allow you to trade in your leased car and buy a new vehicle if you have no more than a year left on the lease. It’s similar to selling your lease to a dealership, only instead of getting a check for the residual value, you get another vehicle.
Check the value of your vehicle before you bring it to the dealership and compare it to the cost of the new car you’d like to buy. If the new car costs more, you could have to pay extra to cover the difference.
Best for: Buying a new car during the last year of your lease
Option 5: Return the car
When your lease is up, you have no obligation to take out a new lease or buy another car. If you’d prefer not to drive or drive a car you’ve purchased separately, you can simply walk away after making your last payment.
Best for: Getting out of a lease entirely without taking on a new one or buying a car
Which option is right for me?
It depends on how much time you have and your personal preferences. Selling or trading in your lease at a dealership can sometimes get you a good deal and is a relatively hands-off experience.
Swapping your lease or selling the car to a private party can sometimes get you an even better deal, though it involves more work. And if you don’t want to drive, you don’t have to do anything at all.
How to avoid wear-and-tear fees
If you’re planning on returning or selling your car, take these steps to make sure you don’t end up paying extra fees for wear and tear.
Get it inspected by a mechanic
Bring your car in for a checkup to make sure it doesn’t need any major repairs. Your car doesn’t have to be in the exact same condition it was when you got it, but fixing any large issues can help you avoid a fee.
Do some cleaning — but not too much
Give it a wash, throw away any trash and vacuum the seats for crumbs before you take it in to the dealership or sell it to someone else. But don’t go overboard — a car that looks like it’s had a major clean up can make some dealerships and buyers suspicious that you’re hiding something.
Negotiate
Whether you’re working with a dealer or private individual, don’t take the first offer you get. Car sales and leases almost always come with some wiggle room. Negotiation is expected — and this can apply to fees, too. Arm yourself with information about your current car’s value, any new car’s value and what the competition is offering to get the best deal.
Should I repair minor dents or scratches before returning my leased vehicle?
If you have a closed-ended lease, you’re responsible for any excess wear-and-tear on the vehicle at the time you turn it in. In this case, you’ll probably want to get minor cosmetic imperfections fixed before returning the vehicle.
If you have a open-ended lease, you’re responsible for the difference between the residual value of the car and its current market value. If the car is in really good condition and is worth more than its current market value, you can rollover the excess value into your next vehicle. But if it’s worth less than its current market value, you have to pay the dealership the difference.
In this case, it’s worth assessing whether the cost of repairs is greater or less than any amount you may owe the dealership based on the condition of the car. You could end up:
Let the dealership repair the car for the same price you could get it repaired. Use the vehicle’s excess value (if any) to absorb the cost of repairs.
Let the dealership repair the car for less than if an independent mechanic repaired it. Pay the dealership excess wear-and-tear fees if the cost of repairing the car with an outside mechanic would be higher. You’ll net out more than if you paid for an outside mechanic to do the job.
Repair the car before turning it in. Pay an independent mechanic to repair the vehicle before you return it to the dealership. This will raise the vehicle’s residual value, so that you either owe zero excess wear-and-tear fees or you get a credit for the vehicle’s excess value.
Bottom line
There are several directions you can go when your lease is nearing the end. And you generally don’t need to wait for it to expire to take the next step. You can learn more about how car financing works with our guide to auto loans.
Frequently asked questions
In a lease-to-own agreement, you’re required to buy the vehicle once the lease is up, usually by making one large balloon payment. If you don’t make that payment, you lose the car and any repayments you already made toward it.
Read your contract carefully if you have a lease-to-own deal. This is a common type of bad-credit financing and typically comes with more restrictions. You might not be able to swap your lease and could even lose out on owning the car if you make a late repayment.
Check your contract and insurance policy to see what’s covered. You might not have to pay for minor damage to your car if it’s just a scratch or bump, especially if you sign up for a lease protection plan.
Even if it’s more than a scratch, you could be covered. If your vehicle is totaled, your insurance company covers the damages. If the lease buyout balance is worth more than the insurance company covers, you might have to cover that additional cost.
Make sure to document the extent of the damage and get an estimate of the repair costs before notifying your leasing company. They’ll then tell you what you’re responsible for paying.
Lease agreements typically come with a buyout option that lets you pay to cancel your lease. You may want to avoid canceling until the amount of the buyout is equal to, or less than, the market value of the vehicle at the time of cancellation.
If the amounts are equal, then you won’t have to pay anything extra for the buyout. If the market value is greater, then you’ll have something to rollover into your next vehicle after the buyout fee is paid. But if the market value if less than the buyout fee, you’ll have to pay the difference to cancel your lease.
You can either buy the vehicle and sell it, trade in your lease for another or simply walk away. If you want to get rid of your car before your lease is up, look out for lease pull-ahead offers and options to swap or otherwise trade your lease without having to pay a fee.
Anna Serio is a lead editor at Finder, specializing in consumer and business financing. A trusted lending expert and former certified commercial loan officer, Anna's written and edited more than 1,000 articles on Finder to help Americans strengthen their financial literacy. Her expertise and analysis on personal, student, business and car loans has been featured in publications like Business Insider, CNBC and Nasdaq, and has appeared on NBC and KADN. Anna holds an MA in Middle Eastern studies from the American University of Beirut and a BA in Creative Writing from Macaulay Honors College at Hunter College, CUNY.
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