PFT #49 - Personal Finance Tip of the Week: The Residual Value of Your Car and Buying Your Lease Out
Updated: Mar 14, 2022
This week’s topic is about the residual value when leasing and should and buy the car when the contract is over.
When it comes to driving a car, the common question is, are you better off buying or leasing?
On the whole, having two separate leases will cost more than purchasing a car outright.
The other question is . . . Should you buy a car when the contract is over or lease again?
If you want to save money typically the answer is yes and this is where residual value comes into play.
For example, if you lease a car for 36 months that has a $30,000 sticker price and the residual value is $16,000, this means that your base monthly payment is covering the car’s depreciation of $14,000 for that three year period.
Hence, when the lease term is over, you can opt to purchase the vehicle for $16,000.
So back to the question . . . should I buy that car? Now, that is up to you; however, there are times this is clearly a better option.
Due to the supply chain problem with high demand and low inventory, the price for cars has skyrocketed.
So if you choose to buy or lease a new car you are going to pay top dollar and keep in mind, these cars will level off to their traditional values over time.
As for my lease, it expires in six months and the current value is $14,000 higher than the residual value. So this is great; however, if I bought the car and then sold it on the open market, I’d still be stuck buying in a seller’s market.
The bottom line is that buying is better than leasing regardless of the economic conditions. Therefore, I will purchase my car especially in this high inflationary environment.