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What Happens At The End Of A Car Lease?

Vehicle leases are generally designed to last 2-4 years, with the vehicle being returned to the dealership or leasing company at the end of the term.
These days, lessees have several options at the end of a car lease, including doing a lease buyout, buying out the car then reselling it, transferring the lease, doing a trade-in, or extending the lease. Before returning your leased vehicle, it's important to first review your options.
This post will review all the most popular options you have at the end of your lease, explaining how to choose the ideal strategy for your particular situation.
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Read on to learn more about end of car lease options.

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How Does Car Leasing Work?

The main difference between leasing and buying is that when you buy a car using a loan, you are making payments toward your eventual ownership of the car, and it becomes yours once the loan is paid in full.
With a car lease, you are basically paying to drive the car for a short-term.
What happens at the end of a car lease agreement? When the term or duration of the lease period ends, the vehicle must be returned to the leasing company or it may be purchased for its residual value.
All auto dealerships offer vehicles available for purchase or lease, and typically, you can get comparative pricing on the monthly cost of buying vs leasing for the same make and model so you can compare which is best for your budget.
Auto Loans for purchases and leases are available from a leasing company, credit union, or bank. Each lender will have different criteria for approving a borrower for an auto loan.
According to Experian data, the average credit score for a car lease in the second quarter of 2020 was 729. So if you need financing, compare the credit score requirements of leasing and buying and be sure to understand the “Pros and Cons of Leasing Vs. Buying a Car.”
Monthly loan payments are based on vehicle depreciation — the difference between the value of the car when it’s new and what the lender anticipates its value will be at the end of the lease term.
Compared to buying a new car, leasing a car can be an attractive option for drivers who:
  • Don't drive a lot. Leases require that you choose a mileage plan. Going over the miles in your selected plan can result in penalty fees.
  • Want to drive a newer/nicer car. Because car leases are short-term (2-4 years), drivers can continually be in a new vehicle, whereas when you purchase a vehicle it will eventually need costly repairs.
  • Want to keep their monthly payments low. The short-term nature of a car lease generally means lower monthly payments than with a vehicle purchase.  
For more details check out How Does Leasing a Car Work and is it Ever Worth it?

How To Lease A Car

Leasing a car is easy once you know the steps and what make leasing different from a car purchase. Leasing a car includes:
  1. Identifying the make and model you want.
  2. Shopping around and comparing prices from dealerships.
  3. Negotiate the price (yes, you can negotiate the price of a leased car!)
  4. Completing a loan application, which includes giving the lending company permission to pull your credit and review of your credit score.
  5. Deciding the term (number of years) of the lease and choosing the mileage limit.
  6. Signing a lease contract agreeing to the lease terms.  
For more details check out How Does Leasing a Car Work and is it Ever Worth it?

Preparing For The End Of Your Lease

How does the end of car lease work? Three to six months before your lease expires you will likely start to receive incentive reminder and incentive letters from the leasing company. This may include promotions encouraging you to consider getting a new leased vehicle or doing a buyout of your existing lease, which would mean taking ownership.
These tips can help you avoid paying penalties whether you return the vehicle, transfer the lease or sell it to a dealership:
  1. Inspect And Make Minor Repairs. Turning in a leased vehicle with excessive wear and tear can be expensive. This is a penalty the leasing company charges to cover the cost of having to make repairs before selling or leasing the vehicle.
  2. Clean The Vehicle. Turing in a clean vehicle will help you avoid paying penalty fees.
  3. Find The True Value Of Your Car. While all cars depreciate over time, some vehicles are popular in the marketplace and are in high demand, even used. Look to websites including KelleyBlueBook, Autotrader, Carvana, Edmunds, and Carfax to get a free estimate of the vehicle’s current value. If the current value is greater than the “Residual Value” that was projected at the start of the lease, you may benefit by buying and reselling the vehicle or selling it to one of these companies, or a dealership.

End Of Car Lease Options

Extend Your Lease.

Some leasing companies and auto manufacturers will let lessees extend their lease. Extension options may be available month-to-month, three-month, or one year increments. Call the leasing company stated on your lease agreement to get your options. Also be sure to ask about mileage – a lease extension means you’ll be driving more miles than you initially anticipated and you need to add more miles to your limit.

Car Lease Buyout.

A buyout is when the lessee purchases the vehicle at the end of the lease term. The buyout price will be stated in your contract or lease agreement and is based on what the leasing company predicted the residual value of the car would be at the end of the lease term. If you can afford to buy the car, research the car’s value using the online car valuation resources stated earlier in this article.
Once you have a good idea of what the car is worth, you can negotiate the buyout price with the leasing company. Buying out a leased car will require that you either pay cash or get a car loan. Not all financing is created equal, so research loan rates.  Having a good credit score will also help you get a low rate (APR) on a buyout loan. If you have bad credit, don’t worry, you may still be eligible for a car loan. CU SoCal can help you get a car loan with bad credit.
To learn more read, “Buying Out a Leased Car: Should You Do It?” 
Dealership Buyout. With used cars in high demand due to low inventory, many car dealers will buy a leased car, knowing they can turn around and sell it for a profit, especially if the car is in good condition with low mileage. If you’re in need of a new car and you have positive equity in your leased car, a dealership may be willing to negotiate and you can use the trade-in value to purchase a new car or new lease. Or, if you just want the cash, visit several dealerships to see which will give you the most money. 
Selling a Leased Vehicle. Car leases are generally created to allow the car lessee to turn the car in at the end of the lease term or purchase the car in a buyout. However, you can also choose to sell a leased car back to dealership or sell the car to a third party. If you are leasing a car and no longer need it due to a change in your work or driving needs, or you simply don’t want to keep it, selling a leased car could earn you some money. This is especially true if you have taken good care of it, which helps maintain its residual value. To learn more, read “Selling a Leased Car.” 
Transfer Lease. This is also known as a lease transfer, swap, or takeover. It involves transferring your lease to another person, which not all leasing companies will allow, so be sure to read your lease agreement or call the leasing company before you take action. Some leasing companies will allow a complete transfer to a new driver and other companies may only allow a limited transfer, in which case your name would remain on the lease while someone else takes over the payments. This is a risky option because if the new driver doesn’t make the payments you will be responsible for paying. 
Trade For Another Lease. If the current market value of the vehicle is more than the “residual value” stated in the lease agreement, consider trading it in and using the equity toward the purchase or lease of your next car. Learn more by reading, “Can You Trade-in a Leased Car?” 
Return The Vehicle. As you can see, there are many roads to take when it comes to the end of a car lease. Your next step will be determined by your finances, driving habits, and personal preference. Returning the vehicle according to the terms of the lease agreement is always an option.

Is Leasing A Car Worth It?

Leasing a car has pros and cons, here are some to consider:
Pros: The monthly payments may be low, you’ll always drive a newer car and save on mechanical breakdown costs, you can “test out” other makes and models to see if you would like to own one, and if you only need a car for a short time, then leasing is a great option.
Cons: Insurance may cost more than on a purchased vehicle, you cannot customized a leased car, because the car is typically returned at the end of the term you do not have equity you would have in a purchased vehicle, there are numerous possible penalties and fees including a fee for exceeding your mileage allowance and a fee for early termination of the lease contract.
We also suggest calling your car insurance company in advance to get a quote on what the insurance will cost for the specific used car you’re considering.

Leasing vs. Buying A Car

The decision to lease or buy is a personal choice and largely depends on how you will be using the vehicle and if you prefer to prefer to keep it short-term or pay toward ownership.
There are usually cost differences associated with leasing vs. buying a car, which will be influenced by the term of a loan or a lease, the amount of money you put down, the interest rate you qualify for, and the value of the car. In the short term, a car lease monthly payments tend to be less, so it is less expensive to lease a luxury vehicle than it is to purchase one. However, in the loan term, leasing ends up costing more year-over-year.
If you are not sure if you should buy or lease, talk to your dealership sales representative about purchase promotions vs. lease promotions and ask for an “out the door” price for both options on the same vehicle.
To help you decide which option is right for you, read “Pros and Cons of Leasing vs. Buying a Car.”

Which Option Is Right For Me?

What happens at the end of a car lease can be entirely up to you! Ultimately, you’ll need to decide which option is best based on considerations such as which car you prefer to drive, the number of years you plan to keep the car, and what the overall monthly payment will be when all things are added up.
Only you will be able to decide if leasing a car is worth it.

CU SoCal Auto Loans

If leasing isn’t right for you and you decide on purchasing a new or used car, CU SoCal can help with car loan financing! We offer:
  • Competitive rates
  • Quick pre-approvals.
  • Extended terms up to 84 months for the lowest possible monthly payment.
  • A personal auto-buying concierge service.
  • Low-cost loan protection add-ons.
  • No application or funding fees.

Why Savvy Consumers Choose CU SoCal

For over 60 years CU SoCal has been providing financial services, including car loans, personal loans, mortgages, credit cards, and other banking products, to those who live, work, worship, or attend school in Orange County, Los Angeles County, Riverside County, and San Bernardino County.
Please give us a call today at 866.287.6225 today to schedule a no-obligation consultation with one of our auto loan experts.
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