How Does a Vehicle Lease Purchase Work?

Vehicle leasing can be a bit confusing, but understanding your options at the end of a lease can help you make an informed decision. Many people believe that there are no such things as 'lease-to-buy' programs for new cars, but all leases inherently include the option to purchase the vehicle at the end of the lease term. However, the process and specifics can vary greatly. In this article, we explore the details of vehicle lease purchase options, focusing on used cars.

Lease-to-Buy Programs for Used Cars

For used cars, 'buy-here-pay-here' (BHPH) dealerships often offer 'lease-to-buy' arrangements. These deals can be misleading and are generally not in the buyer's best interest. Here's why:

These deals can involve overpaying for a subpar vehicle. The payment schedule is often strict, leading to potential issues with repossession. When a buyer misses a payment, the dealer can repossess the car more easily by calling it a 'lease' rather than a 'loan.'

It's important to be cautious with such deals and avoid them whenever possible.

Standard Lease Options and Contract Details

A standard lease agreement typically includes two main options at the end of the lease period:

Buy the Car: If you decide to purchase the vehicle, the options and terms are outlined in the lease contract. These include: Down Payment: You can negotiate a down payment at the start of the lease term. Monthly Payment: The cost calculated based on the leasing factor and other terms. Lease Term Duration: The length of the lease period, typically measured in months. Residual Price: The pre-determined price at which you can purchase the car. Lease Return Terms: Any fees and conditions that must be met to return the vehicle. Mileage Allowance: The number of miles you can drive the car without additional charges.

During the lease period, you are responsible for driving the car, making timely payments, keeping it insured, and properly registered. Once the lease term ends, you have two main options:

Keeping the Car

You pay the specified amount at the end of the lease to the dealership. This amount is defined in the lease contract. After paying the amount, you can drive away with your purchased car. If you plan to finance the remaining amount, you can approach a local bank or credit union a month or two before the end of the lease to secure a loan.

I once used this approach. After the lease ended, the car's buy-out price was around $25,000. However, with the car's increased value due to the popularity of SUVs, I chose to buy it and financed the remaining amount after the lease.

Returning the Car

You may face return fees, as outlined in the lease contract. If you have driven the car beyond the specified mileage, you may owe additional fees. You might owe repair fees if the car shows more than usual wear and tear, such as holes larger than a quarter or exterior damage that can't be covered by a standard credit card. The tires and brakes also have minimum standards. If they are below the required specifications, you may need to replace or service them before returning the car.

For example, if the buy-out price was $20,000 but the market value was $27,000, you could consider keeping the car for future use or selling it as a trade-in. If the buy-out price was $25,000 but the market value was only $15,000, returning the car would be more financially beneficial.

Key Points to Consider

Even if you plan to lease a new car from the same dealership, it's important to fully understand the buyout price and potential gains or losses. Compare the buyout price with the current market value of the car. Consider both options carefully based on your financial situation and needs.

Understanding the nuances of vehicle lease purchase can help you make the best decision for your situation. Whether you choose to keep the car or return it, knowing your rights and options can save you money and prevent unexpected costs.