When You Should (and Shouldn't) Buy Your Leased Car

If your car lease is coming to an end, you have a decision to make: should you roll right into another lease contract, buy out your current lease to own the vehicle going forward, or choose a different car altogether?

While leasing is generally not the most financially sound choice, as it could very well cost you more in the long run than financing a vehicle you'll own, buying your leased vehicle near or at the end of your term can make sense in some cases. Here's when you should (and shouldn't) buy your leased car.

When you should buy your leased car

The choice to buy out your lease when it ends (or before it ends, in some cases) is a matter of balancing finances with your car's condition and whether you want to keep driving it. Here are a few factors that may tip that balance toward buying:

• The purchase price is less than the vehicle's market value. This may be the case if the mileage is low, the condition is like new, and/or the value has increased significantly since your lease term began-and more likely if you took excellent care of your vehicle with routine maintenance and repairs as well as regular cleaning.

• You drove fewer miles than allocated in your lease agreement. You won't get a refund for unused miles, and that low mileage may increase your vehicle's value above the buyout price.

• The vehicle has damage or excess wear and tear. On the flip side, your vehicle being in poor condition can significantly reduce its value, and you may owe a lot in penalties to the dealer upon return (on top of the cost for repairs). In this case, it might be cheaper to buy the lease and get the repairs done yourself.

• You owe fees based on contract terms. In addition to penalties for damage, some lease agreements charge fees for exceeding your mileage allowance. You'll want to factor this in when determining the cost of buying out the lease or returning the vehicle.

• You plan to flip and resell the vehicle. Depending on the make, model, and condition, you may be able to turn a profit by buying your leased vehicle, upgrading it, and reselling it. The used car market has calmed down from its height in the least few years, but some in-demand vehicles may still be worth flipping.

Of course, none of the above really matters if you don't like driving your leased car or it doesn't work for your current (and near future) needs. But if you love your vehicle, compare the buyout price to purchasing the same thing elsewhere, which will help you decide whether buying the lease or shopping the market makes more sense.

When you shouldn't buy your leased car

Obviously the inverse of much of the above is a good indicator that buying out your lease may not be the best choice. If the market value of your vehicle is lower than the buyout price-due to high mileage, wear and tear, or low demand for that make and model-you'll owe a lot in fees, or you expect to have ongoing costly repairs and maintenance, it probably doesn't make financial sense to purchase the car when the lease ends. Similarly, if your needs and preferences have changed, that vehicle may not be the best fit going forward.

Another consideration: whether you can pay in cash (and avoid financing) or if your current credit will get you a good rate and a reasonable monthly payment if you need a loan.

How to buy out your lease

First things first, review your lease agreement to determine whether a buyout is an option and what the costs and fees are. You should also do comprehensive research on your vehicle's current market value (use a site like Kelley Blue Book) and compare financing options-that is, if you need to get a loan to cover the buyout and any remaining payments. Be sure to consider other costs, like registration, sales tax, and insurance payments, as well.

The timing of the buyout may also be a factor. It can be more expensive to buy your lease mid-contract because you'll have to cover remaining lease payments, and you may have more leverage once the leasing company contacts you about 90 days before the end of your lease term to go over your options. As with any car purchase, you may be able to negotiate.