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Now is the Time to Take Advantage of Lease-End Buyouts

December 16, 2010

Lease End BuyoutUsed car prices have been rising at an incredible pace.

Consumers who leased a new car within the last 2 or 3 years could be looking at a potential profit of several thousand dollars if they buy and sell the car at lease-end.

According to Manheim, a company that specializes in car auctions, wholesale used car prices hit a record high last month, up 5.9% compared to a year ago, and up nearly 26% compared to December 2008.

If you leased a vehicle within the last couple of years, chances are the residual value (or end of lease buyout price), is significantly lower than the market price.

When you lease a car, the leasing company basically guesses as to what the wholesale value of the car will be when you turn it in at the end of the lease.

They use algorithms and industry guides to come up with that figure, but sometimes they are way off.

2 years ago, no one expected used car prices would rise to record highs today. Now you can take advantage of this.

One person we spoke to leased an Audi A4 two years ago. Their lease comes to an end in February with an end-of-lease buying price of $18,500.

The retail value of the car is $24,000 - a $5,500 difference.

These opportunities do not come about very often, so if you leased a car 2 or 3 years ago, you should seriously consider buying it at the end of lease and selling it to a private party.

Some states allow you to avoid paying taxes if you buy and sell the vehicle within a set amount of time, and some leasing companies also allow 3rd parties to pay off the car at lease-end and take possesion that way.

In the worst case scenario, you would have to buy the car AND pay taxes before selling it to someone else. This would make sense if the buy-out price is significantly below the retail value.

Make sure you call your leasing company and also find out what the tax options are in your state before trying to use this method.

You'll also want to have a buyer lined up before you take the car back from the leasing company.

My Recommendation for Car Shoppers

TrueCar, Edmunds, and 1-800 Car Show are the quickest way to see the lowest car prices in your area. These sites show you no-haggle prices from dealers closest to you - and the deals are usually really good. This should be the first step you take when negotiating your car price. Follow this up with my checklist to make sure you squeeze out every last bit of savings.

California Residents - Important:

There is a new online car buying service called Roadster, available only to California residents, which I highly recommend you try - especially if you hate the stress of haggling with a car salesman. They provide an expert concierge who negotiates the price of the car and delivers it to your home with zero hassle - you never have to interact with a dealership. Here is my in-depth review of Roadster and why I recommend it.

- Gregg Fidan

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Gregg Fidan

About: Gregg Fidan

Gregg Fidan + is the founder of RealCarTips. After being ripped off on his first car purchase, he devoted several years to figuring out the best ways to avoid scams and negotiate the best car deals. He has written hundreds of articles on the subject of car buying and taught thousands of car shoppers how to get the best deals.

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