Should I Buy My Leased Car With Low Mileage?

As a car lease approaches its conclusion, individuals who have driven significantly less than their allotted mileage often find themselves in a unique financial position. This low-mileage scenario can create an opportunity where the vehicle’s current market value exceeds its predetermined residual value. This article provides a clear framework for evaluating whether purchasing your leased vehicle is a financially sound choice when you have driven fewer miles than anticipated.

Navigating Lease End Choices

As your car lease term nears its end, you generally have three primary options to consider, each with distinct financial implications. These choices include returning the vehicle, purchasing it outright, or extending the current lease agreement.

One option is to return the vehicle to the dealership. This process typically involves an inspection for excessive wear and tear, and you might incur a disposition fee, which can range from $300 to $500, designed to cover the dealership’s costs for reconditioning the car for resale. For a low-mileage vehicle, returning the car means you walk away from any potential equity that has accrued because the car is worth more than its contracted residual value.

Another choice is to purchase the leased vehicle. This involves buying the car at its residual value, which is a figure established at the beginning of your lease agreement. This option is where having low mileage can be most advantageous, as the car’s market value may significantly surpass this predetermined buyout price. Deciding to purchase avoids disposition fees and any potential penalties for excessive wear.

A third option is to extend the lease. Some leasing companies may allow a lease extension for a limited period, such as up to six months, provided your account is in good standing. While this postpones the immediate decision, it is generally not ideal for someone considering long-term ownership.

Determining Your Car’s Value and Buyout Cost

Making an informed decision about purchasing your leased car requires a clear understanding of both its buyout cost and its current market value.

To calculate the total buyout cost, you must first identify the residual value stated in your original lease agreement. In addition to the residual value, you will typically need to pay a purchase option fee. Furthermore, sales tax will be applied to the purchase price. You will also be responsible for registration and title fees.

Assessing the car’s market value involves researching its current worth. Reputable resources such as Kelley Blue Book, Edmunds, and NADA Guides provide valuation tools that account for specific vehicle details. When using these tools, it is important to accurately input information, including the exact trim, features, condition, and critically, the low mileage.

Once you have both the total buyout cost and the estimated market value, you can compare these two figures. If the car’s market value is notably higher than the calculated buyout cost, it indicates that you have equity in the vehicle. This difference represents a financial advantage, suggesting that purchasing the car could be a financially sound decision.

Understanding Long-Term Ownership Expenses

Deciding to purchase your leased vehicle extends your financial commitment beyond the initial buyout, necessitating a full understanding of ongoing ownership expenses. These costs encompass financing, maintenance, insurance, registration, and future depreciation. Evaluating these long-term implications is essential for a complete financial picture.

Financing the purchase is a significant consideration, as many individuals will not pay cash for the vehicle. Options include securing a new auto loan from banks or credit unions, or potentially a personal loan. The terms of these loans, such as interest rates and repayment periods, are influenced by factors like your credit score and current market conditions. It is advisable to shop around for the most favorable loan terms.

Once the car is owned, you become responsible for all ongoing maintenance and repair costs. While leased vehicles often benefit from manufacturer warranties covering many repairs during the lease term, purchased vehicles may see these warranties expire. Most bumper-to-bumper manufacturer warranties last around 3 years or 36,000 miles, with powertrain warranties extending to 5 years or 60,000 miles. As a vehicle ages, even with low mileage, the likelihood of needing repairs increases, with annual maintenance costs potentially rising from $500-$750 for newer cars to $1,000-$2,000 or more for vehicles 7 years or older. Extended warranties can be purchased to cover major components after the factory warranty expires.

Insurance costs may also change when a vehicle transitions from leased to owned, potentially impacting your premiums. Additionally, annual registration fees and vehicle inspection fees will continue to be recurring expenses. These vary by state and can depend on factors like vehicle weight and age.

Finally, understanding depreciation post-purchase is important. While low mileage may have helped the vehicle retain its value well up to the point of buyout, the car will continue to depreciate as you own it. This future depreciation becomes your financial responsibility and should be factored into the overall cost of long-term ownership. The initial equity gained from a low-mileage buyout helps offset some of this future depreciation.