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Saturday, January 06, 2007


The best thing about making this decision is that you are holding the best hand in the card game between you, the leasing company, and the dealer. That is because you know your car better then they do. You probably have been driving it for close to three years, you know how well you have maintained it, how worn the tires are, whether or not its been wrecked and repaired, and how many dings, dents, or upholstery blemishes there are. You know if it was garaged and how you carefully you drove it. You also know, better than anybody, how well it runs. All of these things determine the value of your car.

Unless you buy a new car, you can not have as much confidence in any other used car that you may buy than your own used lease car. The only assurance that you have when you buy somebody else’s used car is their word or the dealer’s word about how it was driven and maintained. That mean that if you did take very good care of your lease car, drove it carefully, kept it in a garage, waxed and washed faithfully, and maintained it carefully it is worth more to you than anybody else because you are the only one who knows that. And you can never be sure about that for any other used car you might buy.

Given that you like your lease car and want to keep it, the next step is determine its wholesale market value. The leasing company usually is not in the business of selling cars, just leasing them. Getting rid of off-lease cars is expensive and time consuming for them. You have an advantage here too and you should be able to negotiate a good price. Remember, you know your car much better than they do. They will usually give you a price you can buy the car for without even looking at it. Oftentimes they will call you first about buying your lease car before the lease is up. Be careful when this happens because this can mean that they are facing a loss if they have to wholesale your car at the auction. They are calling you to sell you your car for more money than they can get for it at the auction.

That is why you need to establish the current wholesale market value for your car. Car dealers call this ACV, for actual cash value. Check the Internet for information on the value of your car., the Web site for Kelly Blue Book is one of the best sources. Consumer Reports can also give you this information. The best check on the wholesale value is to actually drive your car to 3 or 4 car dealerships that are franchised for your make. If you drive a Ford, visit as many Ford dealerships as you can and tell them you want to sell your car. You aren’t misleading them because it’s a lease car. You could exercise your option to buy it from the leasing company and them resell it to the dealer, if the dealer’s offer was higher. If you live near a CarMax store, the largest retailer of used cars anywhere, they buy a lot of used cars over the curb and their prices are usually very competitive.

Now that you are armed with the true market value for your car, you can negotiate the best price with the leasing company. Even if they won’t sell you the car for the ACV, wholesale value, paying as much as $2,000 over wholesale for a car you have absolute confidence in is a good deal. If you can buy it for wholesale or below, you should celebrate!

Another thing to be on the lookout for with the leasing company is when they offer to extend your lease for the same monthly payment you are currently making. That is not a good deal. They are doing this because they will lose money if they sell this car at the auction at the present time. They want you to keep making payments on the car so that their depreciation rate catches up with the residual value. The residual value is the price they guessed your car would be worth in 3 years. If you had leased the car for longer at the onset of your lease, the payments would be lower than they are now. Why should you pay the leasing company the same as they charged you for a shorter lease?


  1. Earl,

    All I can say is what great advice.


  2. I'm glad you enjoyed my article.

    Lessors need to be especially careful in these times of high gas prices due to the plunge in prices of gas-guzzlers...vans, trucks, and SUV's.

    Interestingly, there's a great opportunity for those leasing fuel efficient vehicles, especially some hybrids.

    Whether you drive a gas guzzler or fuel efficent car, lessors can have a large advantage over those who are buying their vehicles...if they are smart!

    At the end of your gas-guzzler lease you can "walk away" and let the leasing company absorb the unexpectedly high depreciation. At the end of the lease for a hybrid or other fuel efficent car, you can exercise your option to purchase. You might be able to buy a great fuel efficent car, like the Toyota Prius, for "thousands of dollars" less than market!

  3. I'm trying to decide what to do about my 2008 Volvo xc90. My lease is up at the end of the month. We really like the car but my wife finds it too big to drive, though I would like to buy the car. it's got navigation, leather interior, heated seats and navigation. Our plan was to get something smaller, like the xc60, which, we thought, would be cheaper.

    It turns out the xc60 is going to cost us about $30 more per month to lease on a 48 month lease. We're also interested in the Infiniti EX60, which I think is going to cost us even more than the xc60.

    Any advice would be greatly appreciated.

  4. Dear Jas,

    When you say it will cost you $30 more per month to lease the Volvo XC60, have you gotten 3 competitve bids?

    If you do consider buying your current leased Volvo, please make sure that your purchase price option is at current market value. You can only do that by getting 3 bids from dealers, preferably Volvo, as to what they would pay for your car [they don't have to know that you lease it]. My guess is that your option price is much higher than the current market value. Your leasing company likely over estimated the residual value 48 months ago when you leased your car.

    European cars like Volvo typically depreciate faster than Asian cars like the Infiniti. I think you might be surprised to find that you can lease a Lexus or an Infiniti for much less than you can lease a Volvo or Saab.

  5. Earl,

    I think this decision is more simple that you are making it.

    First things first, a little off subject. Can consumers accept the fact that everybody is not out to rip them off. The reason there is so much smoke and mirrors in car advertising is because the consumer refuses to just pay a fair price for a vehicle.

    Purchasing a car is the best way to own it. Period.

    A car depreciates in value from day one; no questions here. Most cars take anywhere from a 15% to as much as a 35% hit at drive off.

    Here is how to buy a car.

    #1 - Be prepared to pay your tax and tag fees in cash up front. Never, ever finance tax or any fees. Did you note I said never.

    #2 - Pay a minimum of 20% of the MSRP as a downpayment. 30% is better. This eliminates any negative equity during the loan period.

    #3 - Do not finance a vehicle longer than the initial warranty period. In most cases this is 36 months. Yes this might mean that you buy less vehicle. Remember they all depreciate based on a percentage of the MSRP.

    #4 - Get pre-approved with a local Credit Union. This establishes a maximum finance rate. Only use the dealers financing if they can find a better finance rate.

    #5 - Shop at a nearby dealership that has a good reputation in the community. Find a dealer that has a long history and is involved in the local community. This is your leverage for preferential treatment if you should ever need it. Yes, you can spend days chasing the deal from dealer-to-dealer. In most cases your savings won't justify the time investment. Quit fooling yourself; you've wasted more money on other purchase that were far more meaningless. Quit trying to pick the dealer's pocket. Support local businesses that support your community. Remember that you probably work at or even own a local business that you would like to have the dealer and his employees to do business with; and pay to you your "list" price. Yes, I am absolutely serious. And quit trying to buy below invoice. The dealer deserves the hold-back and factory to dealer incentives. They have the investment in a facility and staff to provide the "Customer Service" that you demand after the sale.

    An old cowboy phrase applies here; "You can't eat my biscuits and call me a jerk."

    #6 - Allow the dealer to service your vehicle regularly. Follow the manufacturer's maintainance recommendations. Take good care of your vehicle and you will be able to drive it years after it is paid off.

    #7 - Drive your vehicle at least two to three years after it is paid off. Save the payments. Sell your vehicle privately and pocket the profit. Use that profit along with the payments that you have been saving as down-payment on your next vehicle. If you have saved additional money as well you will have a substantial down-payment and now you can comfortably afford a much nicer vehicle than the one you had before. Note: "Comfortably afford."

    Now you have learned how to win at the car buying game. And it is a win-win situation. You win and the dealer wins.

    Most consumers that lease do so to get more car than they can normally afford to buy. Haven't we learned from the housing disaster that a bubble will eventually burst.

    Buy what you can afford and learn how to live on less that what you earn and you won't think everybody is out to rip you off.

    17 years in the car business.

  6. Dear "17 years in the car business",

    Thanks for your long, sinere response to my article.

    I agree with many of your points like making a a large down payment and keeping the terms shorter. Getting pre-approved with your credit union or bank so that you can get a lower interest rate than the dealer might offer is smart.

    Buying from a dealer who has a good reputation is just plain good old common sense.

    But, I have to disagree with some of your ideas. For example, you say that "The reason there is so much smoke and mirrors in car advertising is because the consumer refuses to just pay a fair price for a vehicle." This statement is just plain wrong! What do you consider a fair price for any product? In my household, we try to buy the best product for least money. When you and/or your wife go shopping don't you do the same? If I can buy a TV set at Costco that costs 50% more at Target, I'm going to buy the one from Costco even though the salesman at Costco thinks his price is "fair".

    You're basically saying that it's OK for car dealers to trick a customer into buying a car at a higher price because the car dealer thinks that the higher price is a "fair" one.

    It's this delusional state of mind of many car dealers that gives all of us such a low reputation with the general public.

    How do you think I came to become the largest volume car dealer of any make in Palm Beach County and the 7th largest Toyota dealer in the Southeast USA by NOT using "smoke and mirrors" in my advertising or sales practices?

    My definition of a "fair" price is what the customer thinks it should be...not what other car dealers say it should be.

    With that said, I think you have many good points in your comments but I disagree with others. How about calling my radio show, Earl Stewart on Cars, some Saturday? We can discuss this issue like a couple of gentlemen. I promise to give you all the time you need to make your point to our listeners. My show airs every Saturday morning from 9 to 10 on Seaview Radio, 960 am, 95.9 fm, and 106.9 fm. You can stream it on the Internet at The call in number is 877-960-8977.

    Even if you don't call in, I will read your posting on the air this Saturday, May 28, with my comments. I'd rather hear your side of the story too.

    You can still remain anonymous if you like.

  7. My trade in credit and my down payment are not visible on my contract. Where do you think the dealer hid this, or did they just pocket the money? It is a lease contract.

  8. If there is no mention of your trade-in on the lease contract, the dealer may have bought your car as a separate transaction. My dealership does this when the trade-in is a leased car. Normally the down payment and trade-in on a lease are shown under the "capitalized cost reduction" line on the lease contract. This is the same as the down payment plus trade-in allowance on a purchase contract. There is also a place on lease contracts called "net trade-in allowance". This number is the net of the wholesale value of your trade-in and the remaining payments owned the lender. The number would be negative if you oweed more on the car than the car is worth.

    Unfortunately, if you did not get verification of the true value of your trade-in from a third party, you're at the mercy of the dealer for what he says your trade is worth. This is one of the ways that some dealers take advantage of their customers. They under-value the trade-in.


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