First, you need to know the cost of buying out your lease. Read the fine print of your contract and look for the ?purchase option price?. This price is set by the leasing company and usually comprises the residual value of the car at the end of the lease plus a purchase-option fee ranging from $300 to $500. When you signed on the dotted line, your monthly payments were calculated as the difference between the vehicle's sticker price and its estimated value at the end of the lease, plus a monthly financing fee. This estimated price of the car value at the end of the lease is what is termed in leasing jargon ?residual value?. It is the expected depreciation ? or loss in value ? of the vehicle over the scheduled-lease period. For example, a car with a sticker price of $40,000 and a 50% residual percentage will have an estimated $20,000 value at lease end.
Now that you know the cost of buying out your lease, you need to determine the actual value, also termed ?market value?, of your vehicle. So, how much does your car retail for in the market? To pin down a good, solid estimate you need to do some pricing research. Check the price of the vehicle, with similar mileage and condition, with different dealers. Use online pricing websites, such as Cars.com, Edmunds.com and Kelly Blue Book for detailed pricing information. Gleaning pricing information from various sources should give you a fair estimate of your vehicle's retail value.
All you have to do now is compare the two amounts. If the residual value is lower than the actual retail value, than you're into a winner. Unfortunately, there is a good chance a car coming off a lease is a little on the high side. Don't despair though. Leasing companies know as much that residual values on their vehicles are greater than their market value and as such are always on the look out for offers. You can knock down on the price of your leased vehicle with some smooth negotiating tactics. Put forward a price that is below your actual target and negotiate hard until you wind up near that figure.
Let's ask ourselves who can benefit from a personal contract purchase? The easy answer is everyone but it is more suited to people who perhaps wish to drive a car that might otherwise seem unaffordable. It can also be beneficial to people who maybe want to opt out of a company car scheme.
Doing this means that you can use your existing company car allowance to pay for the personal contract purchase but not the company car tax. It can be especially useful to people who have a fixed mileage and travel fixed distances.
Personal contract purchase shares many characteristics with contract hire but the beauty of it is that you can keep your options open and have the right to buy the car at the end of the term if you wish to do so. This is done with a balloon payment at the end of the agreement and is calculated on the vehicles future value. However, if you, for whatever reason, choose not to keep the car, you can simply return it to the car company and either choose another or walk away.
Since mileage is taken into consideration when working out the expected depreciation on the cars value, a set mileage limit is enforced on all personal contract purchases. The monthly payments and the final optional payment are also linked to the expected future value, therefore, the better your chosen car holds its value, the better your personal contract purchase will be.
So, why choose to take out a personal contract purchase? Well, they are pretty low risk since the future value of your vehicle is guaranteed. You only need to give a small deposit to get you started. Monthly payments are fixed and generally lower than those of a personal car loan. A better choice of cars is made available to you and you can return it at the end if desired.
Both John Ugoshowa & Evolution Funding are contributors for EditorialToday. The above articles have been edited for relevancy and timeliness. All write-ups, reviews, tips and guides published by EditorialToday.com and its partners or affiliates are for informational purposes only. They should not be used for any legal or any other type of advice. We do not endorse any author, contributor, writer or article posted by our team.
John Ugoshowa has sinced written about articles on various topics from Affiliate Programs, About Branding and Fat Loss. John Ugoshowa. For more information about Auto Leasing see the Auto Leasing section of The Free Ad Forum at: