SANTA MONICA, Calif. — September 19, 2013 — Most people nearing the end of a car lease term are confronted with the same question: "Should I buy the car or move on to a new one?" Edmunds.com, the premier resource for car shopping and automotive information, says the biggest step toward answering that question comes down to two important numbers: the car's buyout price -- called the residual value -- and its current market value.
"The residual is the pre-determined estimate of the car's value -- and the guaranteed buyout price -- at the end of the lease term," says Edmunds.com Sr. Consumer Advice Editor Philip Reed. "The general rule of thumb is if the residual value is less than Edmunds.com's private-party True Market Value® (TMV®) price of the car, then the buyout is a good deal."
On the flip side, says Reed, if the car's residual value is higher than the TMV®, then the smart play is to turn in your leased car and move on to the next vehicle.
Other factors to consider when deciding whether to buy or return a leased vehicle:
- Many lease agreements include a "purchase option" fee, which is a fee of up to a couple of hundred dollars that must be paid on top of the residual price. Factor this into the expense of buying it.
- If you're unhappy with your residual value -- especially if it's higher than the market value -- there may be some leeway to negotiate it down. Check with the lease holder -- either the bank or a "captive finance company" -- for its flexibility.
- Procrastination may be an option. If you're not ready to buy or return the car at the end of the lease term, you can continue to lease on a month-to-month basis at the same price.
More details on the options that all car lessees have at the end of their term can be found at http://www.edmunds.com/car-leasing/buying-your-leased-car.html.
Even if lessees know that they have no interest in keeping the car when the lease term is up, they still might want to look into buying the vehicle and flipping it for cash that can go toward their next vehicle -- or that can go straight into their pockets. Edmunds.com explains how to turn a car lease into cash at http://www.edmunds.com/car-leasing/3-ways-to-turn-your-lease-into-cash.html.
Edmunds.com projects that 500,000 more leased vehicles will return to the market in 2013 than in 2012. And with leases accounting for one out of every four new car transactions in 2013, leasing is a more popular option for car shoppers than ever before. More information on leasing trends can be found in Edmunds.com's Car Shopping Trends Report at http://www.edmunds.com/industry-center/car-shopping-trends/.
About Edmunds.com, Inc.
Edmunds.com is a car-shopping Web site committed to helping people find the car that meets their every need. Almost 18 million visitors use our research, shopping and buying tools every month to make an easy and informed decision on their next new or used car. Whether you're at the dealership or on the go, we're always by your side with our five-star Edmunds.com iPhone and iPad apps and our Edmunds.com Android App. Our comprehensive car reviews, shopping tips, photos, videos and feature stories offer a friendly and authentic approach to the automotive world. We're based in Santa Monica, Calif., but you can connect with us from anywhere by following @Edmunds on Twitter or by becoming a fan of Edmunds.com on Facebook.