People who rented a car before the pandemic may buy the car at a far lower price than the prevailing market price at the end of the lease.
Car prices continue to rise. But there is a category of people who may still be able to get a discount-those who rented a car before the pandemic, they can choose to buy at the end of the lease.
“People will definitely get positive value in their leases,” said Ivan Drury, senior manager of Insights at Edmunds, a car website.
Automotive analysts say this is not always the case. But the bumpy used car market caused by the pandemic has reversed the number of consumers who signed leases two or three years ago.
The shortage of computer chips required for manufacturing and strong demand have resulted in insufficient supply of new and old models and high prices. According to the American Automobile Dealers Association’s mid-year report, the average transaction price of new cars exceeded US$40,000 for the first time in 2021, and the average transaction price of used cars reached nearly US$25,000.
Brian Moody, executive editor of Autotrader, the online car market, said: “This is a unique period due to increased demand and reduced inventory.”
Shoppers find it has become difficult to get the car they want at the price they are willing to pay. But people whose leases are about to expire may find that they can buy a car they already own at a relatively cheap price.
why is that. With leasing, drivers will basically rent a car for a fixed period of time-they will not automatically own the car at the end of the rental period, as they would when repaying a traditional car loan. But the lease contract usually includes the option to buy the car at a preset price at the end of the lease—usually two or three years later. In order to arrive at the buyout price, the dealer applied a formula to estimate the degree of depreciation of the car during the lease period. But because the price of used cars has risen so fast, most of the buyout values set before 2020 may be lower than the current market price.
Consumer Reports car writer Benjamin Preston said: “The advantage now is that these terms were calculated before the pandemic, when used cars were traded at lower prices.”
According to Experian’s second quarter data, most new car purchases are financed through loans, but about a quarter are leased. Leasing is often popular with drivers who wish to pay a lower monthly fee or prefer a new car with the latest features. According to Experian data, the average difference between loan payments and lease payments for popular new cars in the second quarter was US$109. For example, the average monthly loan payment for the Honda Civic is $418, while the lease is $309. For the Toyota Highlander, the average loan payment is $633, while the lease is $493.
For drivers with leases, the gap between the estimated price and the current market price may be large. The car search site iSeeCars recently compared the current prices of three-year old cars with the estimated acquisition value of new models leased in 2018 and found that the average car value may be 36% higher than the value estimated at the beginning of the lease.
For some models, the gap may be larger. For example, the current market value of Volkswagen Tiguan may be US$9,800 higher than predicted three years ago-an increase of 69%. According to iSeeCars, the value of even the ultra-compact Nissan Versa has increased by more than US$4,300, or more than 50%. The analysis is based on a database containing approximately 10 million new and used car listings.
Therefore, if you like your car and it is in good condition, it may make sense to buy it at the end of the lease. Karl Brauer, executive analyst at iSeeCars, said: “You should be very careful about buying a car instead of returning it.”
Consumers are doing this more and more. Daniel Berce, chief executive of GM Financial, the financial services division of General Motors, said at an investor meeting in August that 89% of leasing customers purchased a vehicle at the end of the lease in the second quarter of this year. It was about 20% a year ago.
You can also buy a car and resell it yourself to make a profit. But you may have to pay sales tax, and there is another problem: if you need another car, it may not be easy for you to find a car you like at a price you think is reasonable.
Mr. Drury of Edmunds said another option might be to use the “equity” in the lease—the difference between the current market valuation and the purchase price—to reduce the cost of leasing a new car. In effect, you sell the lease to a dealer, and the dealer counts this amount into your new car lease.
Jeff Perlman, an independent public relations consultant in Los Angeles, said that he prefers to drive a new car and was able to convert his equity in the 2019 luxury sports sedan Genesis G70 he rented to rent a more expensive, redesigned 2022 version Car. He said that he doesn’t have to save any money, and only pays an extra $38 per month. “I’m very happy,” he said.
Mr. Drury said that one possible problem with this approach is that some dealers and financial companies may not allow you to sell leases to competing brands, which may narrow your choice of new cars.
Check your lease documents. The purchase price—or the formula for calculating it—is usually included in the clause. (It may be called the “buy option” price.) Then use Kelly Blue Book, TrueCar and Edmunds or Carvana and CarMax and other sellers to search online to see the current asking prices of similar used cars. Mr. Brauer said that if the purchase price is lower than the market price, this may make sense.
Paying in cash is the cheapest option because you don’t need to pay interest. However, if you fund the purchase, continue as if you were looking for a car from the beginning. Consumer Reports writer Ryan Felton recently investigated changes in interest rates charged to borrowers with similar credit profiles. He said that before visiting dealers, get pre-approval for loans from a bank or credit union. , In order to compare the financing quotations of dealers. “The best way is to shop around,” he said. And keep an eye on the total cost, he said, not just the monthly payment.
Experian’s data shows that the average interest rate for used car loans in the second quarter was 8.66%.
Post time: Dec-08-2021
