What happens at the end of a car lease? | finder.com

What happens at the end of a car lease?

Trade in your car, get a dealership buyout and 5 more options to consider.

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Leasing can sometimes give you more flexibility than if you’d straight-out bought the 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. These include:

  • Extending your lease
  • Trading it in
  • Buying the car
  • Transferring the lease to another person
  • Jumping on a lease pull-ahead
  • Getting a dealership buyout
  • Walking away

Option 1: Extend your lease

  • Best for: Sticking with the same car without having to buy it

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 Kelley Blue Book or Edmunds.

Option 2: Trade it in for another lease

  • Best for: Getting a new car before or after your lease is up

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.

6 more tips for getting a good deal on your car lease

Option 3: Buy the car

  • Best for: Keeping your car or selling it to make a profit

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.

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How to sell a leased car

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 — states have different rules for private party sales and title transfers. You can either pay off the lease and then sell your car online through a site like AutoTrader, 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 4: Transfer the lease to someone else

  • Best for: Getting a better deal on a new car when your lease has equity — and you want to get out of it early

Transferring the lease to someone else involves selling your current lease to another person before it’s up. The new person takes over your lease payments and you get any equity you have in your car. Your car has equity when the appraised value is higher than the amount you’d pay to buy out your car. It’s common to use the funds for a down payment on a new car.

You can find candidates to take over your lease by posting on a lease trading website, Craigslist or even through word of mouth. Before you get started, check your lease contract to make sure there are no restrictions on lease transfers — also called vehicle swapping. With some companies, you aren’t allowed to make transfers at all. Others don’t allow you to transfer for the first year or so. You might also continue to be liable for the car even after the transfer.

Option 5: Take advantage of a lease pull-ahead

  • Best for: 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 mileage limit if you drove more than expected.

Option 6: Get a dealership buyout

  • Best for: Buying a new car during the last year of your lease

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.

Option 7: Return the car

  • Best for: Getting out of a lease entirely without taking on a new one or buying a 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.

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.

1. 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.

2. 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.

3. 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.

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.

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