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The lowdown on buying your leased car

Like your leased car enough to buy it when your lease ends? Keep a lid on your enthusiasm and wait for your leasing company to contact you.

Make the first move and you could blow your best chance of negotiating a good deal on your lease buyout.

"Let them speak first. If you show an interest, they're less likely to negotiate," says Tarry Shebesta, president and founder of Automobile Consumer Services Inc.

So don't be afraid to keep your leasing company in the dark about your plans to buy your leased vehicle. And while you're saying a whole lot of nothing to your leasing company, you'll want to be doing a whole lot of research on your own.

The first step
Take a good hard look at your lease. Track down the exact dollar amount you'll need to pay to purchase the car at the end of the lease. In many contracts, this means the car's residual value plus a purchase-option fee ranging from $300 to $600.

"The purchase-option price is typically pegged at the residual value," says Michael Kranitz, president of LeaseWizard.com. "You also pay a purchase-option fee."

When you sign a lease, you pay the difference between what a car is worth today and what it is expected to be worth at the end of the lease, plus a monthly fee to the finance company. In leasing language, today's value is called the "capitalized cost." Tomorrow's value is called the "residual value."

Be sure to read the fine print of your leasing contract carefully. Keep your eyes peeled for the words "residual value," "purchase-option price" and "purchase-option fee."

Once you know the cost of buying out your lease, it's time to roll up your sleeves and do some pricing research.

Determine the car's market value
The key thing you want to track down is the actual value of your leased vehicle. How much would you pay if you could buy your car from another dealer? This is your car's retail value.

You also want to find out how much a dealer would pay to buy the car at an auction. This is your car's wholesale value.

Lucky for you, the Internet makes this kind of research easy. For detailed pricing information, check out sites such as Cars.com, NADAguides.com, Edmunds.com, AutoSite, Autopedia, Kelley Blue Book and CarPrice.com.

Pricing information may vary, so be sure to visit several sites. You're trying to nail down a good, solid estimate of what your leased car is actually worth.

If you leased a super-popular car in the last couple of years, there's a chance your car's residual value will actually be lower than its retail value.

Take the ultra-popular Honda Odyssey minivan.

"A lot of the residual values set three years ago are actually lower than the market value," says Raj Sundaram, president of Automotive Lease Guide.

So if you really like your Honda Odyssey, you might as well buy it for its residual value. No other dealer is going to price a 3-year-old Odyssey that low.

Unfortunately for most leasing customers, the residual values on their vehicles are probably going to be greater than the market values of their cars.

"In a lot of cases, the residual is going to be higher than the market value," Sundaram says. "I would say in the majority of cases."

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The reason is twofold. First, many banks and financing companies boost up the residual values of leased vehicles. By inflating residuals, they're able to offer lower monthly payments, which many leasing customers want.

-- Updated: May 12, 2004

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