Your Lease Car - 3 years to Try it - Wanna Buy it?

By Bill Russo

When I was in high school long ago and for a number of years after graduation, it was possible to replace my car, simply by going to the local junk-yard.

  

After I placed one hundred dollars down on the desk in his shack at the front of the property, Bill Rodd, the white whiskered proprietor, would smile and say…

 “Go on out in the yard and pick something out.  The keys are in ‘em.  But that don’t mean the car’s going to start. Drive it out or push it out.  Once it leaves my gates it’s yours.”

Think of how great it was and how easy it was!  Anything in the lot for one hundred bucks! Excitedly I’d roam the dozen rusty metal rows looking at everything from the nearly intact skeletons of 1929 Model As, to beefy relics like Hudsons and Nashes.  There’d be a few minis too - like the little Henry J.  The Kaiser Company’s compact car was designed to be the ‘new car’ for people who could only afford a ‘used car’.  Kaiser left a few items out – horsepower for one.  Brand new the thing couldn’t even do 50!

Customers who bought the Henry J during its production run from 1950 to 1954 didn’t have to worry about their vehicle losing value, because it didn’t really have any value to begin with!  Kaiser Motors intended the Henry J, to be the new Ford Model T.  It was instead the prototype of Ford’s later product, “The Edsel”.

                                Flickr.com  Photo by Hugo 90.

Sometimes I’d find a car that looked good, only to learn that somebody had removed the starter, or in some cases the whole engine!  Bill Rodd didn’t sell just whole cars.  He sold pieces too!  The customers had to remove the part themselves.  Bill Rodd never left his desk where he had an endless supply of foul smelling cheap cigars and coffee.  The coffee might have had something else in it besides cream and sugar.  The old fellow laughed a lot and he did seem to slur his words quite a bit!

I was always able to find a wreck that ran pretty well; usually it was a Ford ‘flathead V-8’ from the late 1940s to the mid 1950s. The vehicles generally lasted me about 10 or 11 months – after which the process would be repeated.

I have to confess that although it’s nostalgic to think about those old days in the 1900s, today’s leasing programs are even more fun than rambling through old Bill Rodd’s yard of relics.  While looking for ‘clunkers’ I’d be dodging the cow-patties (actually dog-patties) deposited by “Emo”, Bill Rodd’s combination friend, junkyard dog, and night-time security team.

Leasing for a fairly modest fee, is a great option for millions of drivers  - especially since massive crushing machines have putt the Bill Rodds of the world and their wonderful junk yard emporiums out of business.

But what about that time when your lease is about to expire? Your lease car, you’ve had three years to try it.  Do you love it?  Enough to want to keep that set of ‘wheels’ permanently in your driveway?  

Should you buy it?

The answer is yes, no, and perhaps.  Just as if you were kicking the whitewall tires of a flashy old Studebaker in Bill Rodd's boneyard of relics, some studying needs to be done to find out if it’s a good deal.

1. Find out the cost of buying out your lease.  Read the fine print of your contract and find the “PURCHASE OPTION PRICE’.  This is the price set by the leasing company and usually represents the residual value of the car at the end of the lease plus a purchase-option fee.  The P-O amount will fall somewhere between 300 and 500 dollars.  When you acquired the vehicle your monthly payments were configured to be the difference between the car’s sticker price and what the company believes it will be worth at the end of the lease, plus a financing fee. The lease gurus call this ending assessment, ‘the Residual Value’ of the car. 

Let’s assume you leased a sporty $30,000 Dodge Charger. If the Residual value is 50 per cent, then at the end of the lease the car would in theory be worth $15,000.  I said ‘in theory’ because in practice the market value of such cars is usually lower than the value placed on them by the leasing company.

2.  Once you know the cost of buying out your lease, you must find out the actual street value of the vehicle. To pin down a good, solid estimate you need to do some pricing research. Check the price of the car with other Dodge Chargers that have similar mileage and condition.  Speak with different dealers and also use online pricing websites; like Cars.com, Edmunds.com, and Kelly Blue Book.

3. When you know how much it will cost you to ‘buy out’ your lease and the ‘actual retail value’ of the car you can decide whether it’s worth it for you to actually ‘buy’ it. Please keep in mind that you will have to pay extra if you are over the mileage limits.  Also think about the wear and tear on the car and any minor damage it may have.  Those are other costs that you will have to pay.  What seems like ‘minor damage’ to you could be a major pain in the wallet when it comes time to settle up. If you buy the car, you won’t have to put that money out – so this could possibly factor into your decision.

Compare the two amounts. If the residual value ($15,000 in our example) is lower than the ‘street price’, then you’ve got a winner! Unfortunately, there is a good chance a car coming off a lease is going to be a little on the high side.

The good news is that leasing companies know that their prices tend to be higher than what the market will bear and they may be amenable to ‘an offer’. Hit them with a lowball figure and be ready to do a bit of hard negotiating.  There is a reasonable chance of you being able to strike a deal that will keep the Charger in your garage and leave you with enough money left over to be able to afford the gasoline to run it! 

Good Luck, happy motoring, and if somehow you wander into Bill Rodd’s yard, don’t step on Emo’s Cow-Patty.