Most people think that if you lease a vehicle you only have one option at the end of the lease - and that is to turn the vehicle back to the Leasing Company. That is an option, but it is only one of your three options.

At the end of a lease, you can: (1) return it to the leasing company, (2) buy the vehicle and keep it, or (3) use it as a trade in - allowing the dealership to buy it and use it towards your next purchase.

1. Returning a lease vehicle is a relatively simple thing. Your leasing company will contact you about 3 months before your lease is due to ask about existing miles and to offer (in most cases) the option to purchase the vehicle at the residual value. If you have driven fewer miles than the lease allowed and have no outstanding condition issues, all you need to do is make arrangements for the vehicle to be inspected and turned in to a dealership that the leasing company is associated with or have the vehicle picked up at your home or office. Upon return of the vehice, the dealer will make a final inspection noting any damage and the final mileage. You will be asked to sign a receipt acknowledging the return of the vehicle as well as an Odometer Statement certifying that the mileage is accurate. Remember, most lease companies charge a “disposition fee” at the end of their lease. This fee is to cover the transportation of the vehicle to the auction, recleaning, administrative fees, etc. Usually it is around $300 and you should expect to receive a bill for this amount. This fee is not negotiable and will not be waived unless you exercise options 2 or 3 below.

2. Buying your leased vehicle is always an option. If you want to exercise this option prior to the end of your lease, contact the leasing company and request a “Pay Off.” That is the amount of money required to satisfy the outstanding obligation and transfer title to you. At the end of the lease the purchase price would be the “residual value” as is printed on your Lease Installment Contract. Most leasing companies refuse to negotiate with their lessee’s regarding this price; however, it is always good practice to attempt to get a price reduction if you are considering purchasing your vehicle.

A couple of things to note about buying your vehicle off lease. First, you should not owe the leasing company any additional fees for damage, mileage, or the like. Second, make sure to compare the purchase price you are looking to pay with the actual market value. Check www.kbb.com for the used car value of the vehicle to ensure that your are not over paying. Third, you can arrange financing for the vehicle through any finance source you choose - so if you are a member of a Credit Union, check your rates. And finally, in those states which provide a Used Car Lemon Law, typically buying your own vehicle off lease would not qualify under the Lemon Law. Had you purchased a used vehicle from a dealer, it would, but an off lease purchase is exempted.

3. Finally, here’s the option most people never consider. Since you can purchase your lease vehicle at any time during your lease, you can also purchase (then sell) your vehicle any time. Now follow the logic. If you do it simultaneously, you can then sell your lease vehicle to anyone you want - including a dealer. That is called: trading your vehicle in to the dealership. This is an excellent option if: (a) your vehicle is worth more than the payoff/or residual and you want to take that benefit; (b) you want to terminate your lease early and the sum of the outstanding payments is more than any negative equity you would owe; and (c) if you owe significant amounts for excess mileage or damage.

In essence, a lessee has options that a purchaser doesn’t have. Both the lessee and purchaser can keep the vehicle and sell (or trade) the vehicle. But only the lessee can walk away without owing anything, especially in economic times like these - where the values of a used vehicle are more uncertain due to lower car sales, higher gas prices, increased new car incentives, and a sluggish economy.