Should You Buy Your Leased Car?

Even after two or three years of driving a leased vehicle, you may find yourself wanting to stay attached to your "rented" car. The good news is that the relationship doesn't have to end.

Leasing companies are happy to sell you the car for its residual value — what the leasing and finance companies determined at the start of the lease to be its expected value at the term's end. But before you make that commitment, there's some homework you should do first to make sure it's financially worthwhile. (See also: What You Need to Know Before Leasing a Car)

How Much Is It?

Find the contract for your leased car and look for the "purchase-option price" or "residual value." That's the price you'll have to pay to buy the car, along with a purchase-option fee of $300 to $600. Some leasing companies won't bargain with you on residual price when the lease is up, while others will negotiate. But before you can negotiate, you need to know the market value of the car, so you know whether it's worth buying your leased car at its residual value.

For how much could you buy the car for from another dealer or from a private seller? That's the retail or market value. It may be lower than your car's residual value, giving you a great advantage in negotiating a lower buyout price.

You also want to determine the car's wholesale value. That's the price the leasing company can get for it at auction, which is its only option if it doesn't sell the car to a dealer.

You should be able to determine your car's value by searching online, such as at Kelley Blue Book or Unless your leased car was extremely popular, chances are its residual value is higher than the market value.

What Shape Is Your Car In?

You're responsible for the car's condition at the end of the lease term, and how many dings, scrapes, and miles you put on it will play a part in how much you pay to buy it. Even if you don't buy the car, you'll have to pay for those things, anyway.

Leases only allow up to a certain number of miles per year — usually 12,000 — and going over that will cost you an extra amount per mile. The fee could be as high as 25 cents per extra mile, adding up to $250 for every 1,000 miles over the limit. You can avoid the fee by buying the car.

Any dents and scratches on your leased car will result in a penalty fee from the leasing company. One way to avoid those penalties is to buy the car, though those dings are things you'll have to live with.

They'll Call You

If you've determined that the market value is more than the purchase-option price of your leased car, or you're happy with the residual value of the car and you want to buy it, don't make the first move.

The company will probably call you one to two months before the lease ends to see if you're open to purchasing the leased car. If you call first, it could show that you're eager to buy the car and your negotiating power could drop. Before they call, you can get ahead of the game by shopping for a lease-buyout loan. Local banks, credit unions, and online lenders can offer you rates, which you can pitch to the leasing company if it wants to finance your buyback loan.

When the leasing company does call, don't immediately tell them that you want to buy the car. Tell them you don't like the residual value and ask if they'll knock down the purchase price. Can they give you a better deal on the loan or waive the purchase-option fee? If you know your car's market value, you're a step ahead in the negotiating process. All of this homework may look like a lot, but it's a lot less work than starting from scratch and shopping for a new car.

After all, the car is already in your driveway and you've driven it for years. You know if it's a car you want to continue driving. Now all you have to do is get it at the best price you can.

Have you ever purchased the car you leased?

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