You probably know that new and used car prices are at historic highs.
In previous columns I’ve recommended that you don’t buy a new or used vehicle today, because waiting until the microchip shortage abates and supplies of vehicles rise will see prices drop by thousands of dollars.
This advice is particularly aimed at those who don’t have another car to trade in. This is because the car you trade in is worth about as much more as the vehicle you’re buying increased. In other words, the value of your trade-in largely offsets the increased cost of the car you’re buying.
About a third of new cars on the road today are leased. A lease contract includes a clause giving you the legal right (option) to purchase that vehicle at a price that was fixed when you leased it, about three years ago. This amount is the “residual” and was forecast (guessed at) by the leasing company. Often, those forecast prices are inaccurate because markets change. Over the last two-plus years with the COVID pandemic, rampant inflation and the microchip shortage precipitating the vehicle shortage has caused those lease residuals to be much, much lower than today’s market value of your leased vehicle.
Many are unaware of their option to buy their leased vehicle, and the leasing company or the car dealer takes the vehicle back, sells it at the auto auction and makes a huge profit above your option price.
To take advantage of the increased value, you must first establish today’s market value. You can do this by shopping your vehicle to several potential buyers. The used car departments at franchised dealers for the same make you drive will make offers. Go online to used car companies like www.Carvana.com, www.WeBuyAnyCar.com, www.CarMax.com, www.Vroom.com and many more. Google “Used Car Buyers” and you’ll find many more. It’s a “seller’s market” and the more you shop your leased car, the higher the price you’ll get. Of course, you technically don’t own the car; the leasing company does. But that won’t deter you from hearing the offers. You’ll have to exercise your purchase option before you can sell it.
Different leasing companies have different policies on exercising your option to buy. GM, Honda, Toyota and Ally Leasing will sell you the lease car at the residual and this is the safest, easiest way. Your leasing company, if they won’t buy your offlease car, will require you to return it through one of their dealers. Unfortunately, most dealers will add bogus fees, often over a thousand dollars to your option price. If you must go through a dealer, shop the dealers to find the one that charges the lowest extra fees.
If you don’t want to buy and then sell your off-lease car, you may be able to get an extension on driving the lease for up to six months. The longer you can wait to make another purchase or lease, the lower the prices will be when you do have to commit.
If you own a car now, you can realize all the advantages described above without all the hassle. Just be sure you shop your trade-in to as many of the used car buying sources as you can. ¦