Pros and Cons of Early Auto Lease Termination Offers

Returning your leased vehicle before the term is completed can result in a hefty termination fee. As vice chairman Jeremy Anwyl explains, “Both car companies and dealers want to keep you in their product. This is really a cheap way for them to hold onto a customer, and that’s obviously very important.”

On the other hand, manufacturers sometimes offer their lease customers what is known as a “pull-ahead.” Such offers generally allow customers to get out of their current leases 90 days prior to the end of their lease term.

Pull-ahead offers also help manufacturers and dealers.  As executive vice president Scott Hall explains, “If they’re trying to get rid of excess vehicles, pulling in leases ahead of schedule is a good way to keep their customers and possibly get them into the models they need to move. It could also be to get certain types of vehicles to auction at a more attractive time of year.”

Pull-aheads come in two types; those that are offered by dealers, and those that are offered by automakers and their finance companies. The latter type typically doesn’t cost the consumer any extra money because the automaker funds the deal.

Dealer pull-aheads, on the other hand, can wind up costing the consumer because they’re typically offered when the lease vehicle is worth more than the value estimated in the residual value notice. Dealers tend to make these offers when used auto prices are high, and they can make more of a profit by reselling the vehicle than by executing the lease term.

Consumers are under no obligation to accept pull-ahead offers. If your current lease vehicle is worth more than the residual value, and you’re considering leasing again, it makes sense to keep it until the end of the lease term.

You might also want to consider buying your next vehicle. Most consumer rights experts agree that leasing can be far more expensive than buying.

Consumer Reports associate finance editor Anthony Giorgianni says, “People who lease think it’s a really good deal because the monthly payments are lower. In reality, they typically pay more.”

Last month, Consumer Reports Money Advisor did a hypothetical comparison between 48-month lease and 48-month financing of a $30,520 new vehicle. Assumptions included a 10 percent down payment, normal depreciation and a $500 lease acquisition fee.

Monthly lease payments were calculated to be just $348 compared to $659 loan payments Due to the significantly lower monthly payments of the lease, purchasing would cost the consumer $15,000 more over the 48-month term.  However, at the end of the term, the buyer would own a vehicle valued at $15,494.  Additional charges, including excess mileage charges could also tack on hundreds of additional dollars to the actual cost of the lease.

“The Car Book 2013” author Jack Gillis urges consumers to buy their vehicles when the lease term is completed. “After all,” says Gillis, “the key to finding a good used car is to know its history and you’ve been driving this car, so you know its history. Furthermore, there’s a chance that the residual value is less than the actual value of the car, which means you can get a bargain.”

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