Home » MONEY FORUMS » Transportation » People say that as soon as your drive the car off the lot that it loses value. Is this equally true for cars which you have taken a loan on versus cars you purchase after leasing?
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Posted by Cameron (MONEY FORUMS: 5, Answers: 0)
Asked on November 9, 2015 3:11 pm
Purchasing a car you have leased at the end of the lease is different than any other car purchase. When you lease a car the amount you can purchase it for at the end of the lease is specified in the lease agreement. At the end of the lease you have the option to purchase the car at this preset price. The car could be worth more or less than the price specified in the lease. The big variables being the used car market, mileage on the car and the car's condition. In some cases you can purchase the car for less than it is worth, which puts you in a positive equity position. In many cases the car is not worth the specified price and you are better off passing on the purchase. There is no way to know what the market value at the end of the lease will be when you lease the car, nor is this a good strategy to ultimately purchase the car; leasing and then purchasing at the end of the lease will be more expensive than purchasing new. If however, you leased a car and then when you get to the end of the lease you are looking at your options you should always look at the purchase option closely. Purchasing a car which someone else leased is really the same as any other used car purchase. Dealerships price off-lease cars the same way they price any other used car, which is based on the maximum they can expect to get for the car in the market. It is very rare that a car will be worth the purchase price when you drive it off of the lot.
It does not matter how the car is financed (leasing is a form of financing a car). As soon as the car leaves the lot it is no longer new and depreciates. The issue for those that borrow money to buy a car in the first year or two is that, unless they paid a large downpayment on the car, it is very likely that the value of the car in the eyes of the insurance company if you were to total the car market on could be LESS than what you still owe on the car. This is what "gap" insurance covers.