Author Topic: After a car lease is up, should I return or purchase it?  (Read 856 times)

degrom7

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After a car lease is up, should I return or purchase it?
« on: November 10, 2018, 07:06:07 PM »
2 years ago, I leased a new SUV (before discovering FIRE). In a year, I will need to decide whether to return it or purchase it since I already took a huge hit on depreciation. Now that I'm committed to saving more, I was just planning to buy a used car next year with cash but now I'm not sure.


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« Last Edit: November 10, 2018, 07:33:44 PM by degrom7 »

chasesfish

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Re: After a car lease is up, should I return or purchase it?
« Reply #1 on: November 10, 2018, 07:14:16 PM »
What is your residual buyout and what is the vehicle worth in trade-in?

Its really just a financial decision:  If your residual buyout is lower than market, buy the car and sell it to a dealer/carmax/wholesaler.  If its higher than market, turn in the car.

Go get a mustachian vehicle afterwards

ketchup

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Re: After a car lease is up, should I return or purchase it?
« Reply #2 on: November 10, 2018, 07:26:43 PM »
2 years ago, I leased a new SUV (before discovering FIRE). In a year, I will need to decide whether to return it or purchase it since I already took a huge hit on depreciation already. After being committed to saving less, I was planning to buy a used car with cash but now I'm sure.


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Bold mine.

You already ate the depreciation, and nothing you do going forward will change that.  Pretend that didn't happen, because it doesn't matter. 

With your current knowledge and goals, would you buy the car you already have?  If not, sell it/return it when the lease is up.

degrom7

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After a car lease is up, should I return or purchase it?
« Reply #3 on: November 11, 2018, 08:30:02 PM »
What is your residual buyout and what is the vehicle worth in trade-in?

Its really just a financial decision:  If your residual buyout is lower than market, buy the car and sell it to a dealer/carmax/wholesaler.  If its higher than market, turn in the car.

Go get a mustachian vehicle afterwards

I can purchase the car for $16,817 when the lease is up. Retail value when I first got it was $26,500

The carfax value is over $20,000. Does that mean if buy it, carfax will buy it for that price?

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« Last Edit: November 11, 2018, 08:34:17 PM by degrom7 »

terran

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Re: After a car lease is up, should I return or purchase it?
« Reply #4 on: November 11, 2018, 08:42:25 PM »
As far as I know carfax doesn't buy cars. Carmax does. which are you referencing?

As others have said, don't fall prey to the sunk cost fallacy. What's done is done with the lease. Your only consideration now is would you pay $16,817 for this car with the mileage it has and the condition it's in or would you buy some other car on the market for what you can buy that car for instead?

degrom7

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Re: After a car lease is up, should I return or purchase it?
« Reply #5 on: November 11, 2018, 08:49:57 PM »
As far as I know carfax doesn't buy cars. Carmax does. which are you referencing?

As others have said, don't fall prey to the sunk cost fallacy. What's done is done with the lease. Your only consideration now is would you pay $16,817 for this car with the mileage it has and the condition it's in or would you buy some other car on the market for what you can buy that car for instead?

Oops I meant carmax. The value is definitely higher than the residual value. I'm still undecided on the car. With a baby on the way right before the lease ends, it might just be easier to purchase it.


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Ricksun

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Re: After a car lease is up, should I return or purchase it?
« Reply #6 on: November 12, 2018, 04:54:24 AM »
One thing to note is that you know everything about this car already.  You know whether it fits your lifestyle, whether you like the amount of space, how it handles turns, how it brakes, etc...

More importantly, you know its service history, quirks, how it was handled the past 2 years, etc...

Turning it in and buying another different used car introduces uncertainty.  You can mitigate a lot of that incertainty by looking at past service records, getting it inspected, and taking test drives, but there's still no guarantee that you're not getting someone else's mistreated lemon of a car. 

Excluding your financial situation (whatever it is - you don't mention), If the residual value is somewhat near or less than the KBB buy value of an equivalent car, I'd keep the one you have if you're happy with it.

Ricksun

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Re: After a car lease is up, should I return or purchase it?
« Reply #7 on: November 12, 2018, 06:12:39 AM »
What MPG does this SUV get?  If it is a pig on gas, figure out the best way to swap if for something with better milage and do it.  I doubt there is a opportunity for "profit" by selling it to CarMax, but go ahead and get a CarMax offer, just to see what the liquidation value is.  How many kids do you have?  Even if you have 3+ a minivan usually makes more sense for a large family vs an SUV.  $10k can buy you a very decent used sedan or minivan with less than 100k miles and free up 7k to be invested in appreciating assets (stocks/RE) vs a depreciating asset (vehicle).

chasesfish

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Re: After a car lease is up, should I return or purchase it?
« Reply #8 on: November 12, 2018, 12:37:33 PM »
Yes - go ahead and get a carmax offer and if it's higher than your residual value, then you know you at least need to "buy" the car and resell it instead of turning it in.

Whether or not to keep the car after that is entirely a personal choice and depends on your transportation needs