Is now a good time to buy out your car lease?
By Michelle Warren • Bankrate.com

It's a common dilemma: Your car lease is coming to an end, so do you buy it out, lease again or switch tacks all together and buy a new vehicle? The pros and cons for each used to be relatively straightforward, but as with all things these days, the economic madness of the past 15 months has changed the game.

Chances are when you signed that lease three or four years ago, the phrase "economic meltdown" wasn't part of the everyday lexicon, and the buyout price set in your contract didn't take into account fluctuating gas prices, volatile resale value for some automobiles and the emergence of zero percent financing on new vehicle purchases.

It's a different world: So what does that mean for those who want to buy out their leases but aren't sure if it's the right move?

The first place to start is by examining the buyout price of your vehicle, also known as the residual value, which should be clearly listed on your leasing contract.

Understanding residual value
The residual value is the projected market value of a vehicle at the end of a lease. It reflects the depreciation of the vehicle's value and is based on a percentage of the original manufacturer's suggested retail price. Many factors, including mileage, wear and tear, the price of gas, resale history and economic conditions, can influence residual value.

As no one has a crystal ball, residual values amount to little more than an educated guess. Consumers often think residual values are set in stone, but different dealers and leasing companies often come up with varying figures for the same make and model. That's why when shopping for a lease, you should try out a few dealers, even if you know exactly what you want.

Leasing with an eye on buying
One of the factors that makes leasing so attractive is that monthly payments tend to be less than financing a new vehicle. However, if your ultimate goal is to buy the vehicle at the end of lease, you might do yourself a disservice by opting for the lowest monthly payments.

It might help to look at it this way: If you plan to buy your vehicle at lease-end, go with the higher monthly payment-lowest residual option, but if you plan to give it back and lease again, the lower payment-higher residual option is your best bet. In simple terms, if you're looking at two vehicles that cost $22,000 and the residual on A is $11,000 after three years and B is $15,000, then the lease payment on A would be $305 (plus interest, taxes, etc.) a month, while the payment on B would be $138 (plus interest, taxes, etc.).

If you're leasing to buy, it's either pay now -- in the form of a down payment or higher monthly payments -- or pay later with a higher buyout price.

To buy out or lease again
People buy out their vehicles at the end of their leases for a variety of reasons: They like the vehicle and the buyout price makes it a good deal; they know the history of the vehicle; they've gone over the allotted kilometres; there's excess wear and tear and they want to avoid the penalty; or it's simply less time-consuming than negotiating a new lease or shopping for a new car.