More Information about Purchasing the Vehicle

Most open-end leases have a purchase option that permits you to purchase the vehicle for the residual value. If you decide to buy the vehicle you are leasing, begin by reading your lease agreement to find out what steps you need to take. You need to notify the lessor about your decision in advance.

Assume that the vehicle is worth less than the residual value because of a general decline in the used-car market or other reason and that you have a purchase option. You can avoid the immediate cost of the end-of-term deficiency by purchasing the vehicle or arranging for a third party to purchase it. If you don't have a purchase option, you can offer to buy or arrange for the purchase of the vehicle, although the lessor is not obligated to accept your offer. You may want to do some research to determine an estimated value for the car and whether the three-payment rule may limit your end-of-term liability. Many libraries and Internet sites have information on used-car values. If you offer to buy the vehicle for the residual value, the lessor must either sell you the vehicle or give up the right to charge you if the vehicle is sold for less than the residual value.

You may owe a purchase-option fee, any applicable sales taxes, and other government fees (for example, inspection charges and registration fees). Be sure to include these amounts in your calculations of how much money you'll need to buy the vehicle.

You may pay for the vehicle either with cash or by taking out a loan. If you decide to get a loan, it pays to shop around. Even a half-percentage-point reduction in the loan interest rate can mean savings; for example, for a $10,000 loan for 48 months, reducing your rate by one-half percentage point saves $114 in interest costs over the term of the loan. Most loans carry higher interest rates for used cars than new car loans, although some lessors offer special rates and terms for financing the purchase of leased vehicles. Other lenders have special rates that are between their new-car and used-car rates.