Should I Return My Leased Car Early?

Published in CarSmart Eletter, 2015, Written by Viraf Baliwalla, 2015-05-24

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One of our readers (and past client) from Alberta, Alex, emailed our Ask V. Auto Buying helpline recently to ask "My 2012 Prius is in the final year of it's lease and I am getting solicitations from the dealership offering 110% of market price. Is there any gain from going that route? I would only replace it with another Prius as I am very happy with the car. Would appreciate your insight."

Here is the answer for Alex, and anyone else who gets such a call from their dealership.

The dealership has two motivations when doing this. First, if your vehicle is in good shape with low mileage, they may already have a buyer lined up who will be paying a lot more than what they are giving you. Market price means wholesale trade in value which is a vague number based on what they can convince you to accept.

Second, by soliciting you now, they can lock you into another vehicle for the next term. Toyota Finance does the leasing but is separate from Toyota dealerships. They will not forgive the balance owing for the final year. So the dealership will pay the remaining payments for you and add that total to the price of the next car so they break even on the buyout. Now you will be paying for the final year over time, meaning double dipping on their end. I would not recommend it.

The math and the sales pitch is pretty slick. Imagine you are in a dealership having some work done. While waiting, you decide to check out the showroom and are caught admiring a new vehicle. "Would you like it?" the salesperson asks. "No thanks" you reply, "I still have another year left on the lease".

"Not a problem" says the salesperson. "We can buy out the remainder of the lease and put you into a new vehicle today".

Of course, the temptation is too great not to ask the next question "How much?" and once those words come out of your mouth, you're hooked.

The salesperson goes to work out the figures with their manager and comes back with a monthly payment. It is a little more than you're paying now but gets you into a brand new vehicle with all the bells and whistles you were just admiring. It makes perfect sense that your payments would be a bit higher because it is a brand new car and prices always go up.

Here's what is really happening. The dealership didn't lie to you, they are buying out your lease from the leasing company. What they didn't mention was that they are then adding it back into your next contract and spreading it out over the new term. Assuming the vehicle hasn't risen much in price, this increases the payments somewhat but it is not that noticeable (less than a cup of coffee a day). The leasing company pays out the dealership so they aren't out anything and the leasing company can wash off the old debt from their books because the dealer paid it off.

Your car buying lesson this issue: You are always better off waiting till the lease is over and handing it back in, then starting a new contract.

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