I made the final lease payment on my 2007 Hyundai Tucson a few weeks ago. Next week I’m going to the dealership with a cheque for $10,000 to buy out the car lease. The vehicle is still in great shape, and with only 74,000 kilometres on it, I plan on driving it for at least another 10 years.
We originally went with a car lease instead of financing or buying used because our cash flow was tight and we didn’t have enough money saved up to buy something decent.
For many people, cars are about psychology and how you feel about yourself as much as they’re about four wheels. At the time, we had one vehicle to get us both around, and it wasn’t the most reliable car on the road. After taking a road trip to BC in the middle of July in our black Elantra with no air conditioning, we came home and decided to get a new car.
Related: My Brand New Car
There’s no doubt that leasing is the most expensive way to get a car. The lower monthly payments are great for a few years, but when the lease is up you’re left with the choice of returning your car to the dealership or buying it out.
Is buying out your car lease a good idea?
If you want to continue driving your car after your lease is up, buying out the lease can be a good option. Since you already know the car’s history and its condition, it’s like getting a used car without the uncertainties of buying from a dealer or a stranger.
Also, if you’ve exceeded your mileage limits, or have excessive wear or damages and want to avoid paying the related penalties, you should consider buying out your car lease.
The residual value is typically non-negotiable with the lease company, but it doesn’t hurt to ask. If the company won’t negotiate, you need to decide if the stated price is fair.
When you lease a car, you’re paying for the car’s depreciation. What’s left over at the end is the residual, which is the same as your lease-end purchase price. So when you buy a car for the residual value, you’re simply paying for the portion of your car’s original price that you haven’t already paid.
The other way to look at this option is from a market value perspective. If you had to buy a similar used car from a dealer or individual, with the same mileage and equipment, what would you have to pay?
Before I decided to buy out my car lease, I did some research to see the fair market value of a 2007 Tucson. According to Canadian Black Book, the car should be worth $10,250 – and that’s assuming there’s 120,000 kilometres on the vehicle (24,000 per year).
I also looked at Kijiji for used cars in my area, but the asking prices for similar vehicles was over $10,000 and they all had more mileage than my car.
While leasing was a good option for us at the time, we decided to put a stop to the perpetual cycle of car payments that end up costing us thousands of dollars over our lifetime.
We’re confident we bought a reliable used car for a fair price, and plan on driving it for a long time. We’ll also start setting aside a few hundred bucks a month so when we’re ready to buy another vehicle down the road, we can pay for it with cash.