Everyone who leases their vehicle knows what happens if they return it before the end of the contract –you get hit with an early termination fee. That is, unless the manufacturer or dealer wants you to get out of that lease and into another.
“Both car companies and dealers want to keep you in their product,” said Jeremy Anwyl, vice chairman of Edmunds.com. “This is really a cheap way for them to hold onto a customer, and that’s obviously very important.”
These so-called “pull-ahead” lease offers are fairly common. They generally take place about 90 days before the lease ends.
Manufacturers use them to better manage their inventory, according to Scott Hall, executive vice president of Swapalease.com, an online car-lease exchange service.
“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,” Hall explained. “It could also be to get certain types of vehicles to auction at a more attractive time of year.”
For example, they don’t want a bunch of convertibles to come back in the middle of winter because they’re harder to resell. So they might try to pull them in ahead of schedule.
There are two types of pull-ahead offers: those offered by the manufacturer (or its finance company) and those from the dealer.
“If the car company is funding it, then it’s really doesn’t cost the consumer anything,” Anwyl explained. “They’re basically eating the cost of paying for those last few months. So it’s an extra incentive to the consumer and it could make a lot of sense.”
Jack Gillis, author of The Car Book 2013, urges caution if the dealer is offering to get you out of that lease early.
“Chances are the vehicle is worth more than what they estimated in your ‘residual value’ notice,” Gillis said. “This happens when the used car market is hot and used car prices are high, as it is right now.”
Clearly, there’s no obligation to accept the offer. You need to run the numbers and if they aren’t appealing, keep the current lease.
If the vehicle is worth more than the residual value, you may want to wait until the end of the lease, because you’ll probably get a better deal on the new lease.
Or maybe you should buy that next vehicle
If your goal is to save money, leasing is not the way to go. In fact, consumer experts say it can be significantly more expensive than buying.
“People who lease think it’s a really good deal because the monthly payments are lower. In reality, they typically pay more,” said Anthony Giorgianni, associate finance editor at Consumer Reports.
For its January issue, Consumer Reports Money Advisor ran the numbers for a 48-month lease versus a 48-month loan on a new vehicle with a negotiated price of $30,520. The editors assumed 10 percent down, a $500 acquisition fee for the lease, and average depreciation.
Because the monthly lease payment was significantly lower – $348 vs. $659 – the total outlay in cash after four years was nearly $15,000 less than what the buyer paid. But the buyer had a vehicle worth $15,494 at the end of the loan.
In this example, leasing was $559 more ($19,767 vs. $19,208) and that does not include the end-of-lease disposition fees (such as excess mileage) which could be hundreds of dollars more.
Because of this price differential, Gillis advises buying your vehicle when it comes off lease rather than getting into the perpetual cycle of leasing a new vehicle every few years.
“After all, 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,” he said. “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.”
“If the vehicle is in good shape and has served you well, and the market value is more than the residual value – buy it and stop leasing,” Gillis advised. “Offer less than the residual value. Chances are high that the dealer will take your offer as that saves them the refurbishing and marketing costs to resell the vehicle.”
How do I find out about these early-returns offers?
Pull-ahead offers aren’t really marketed. You won’t see ads for them on TV or in the newspaper. You just get a call from the dealer or a letter from the finance company about three month before the lease is up.
They’re more common at the end of the year when manufacturers are trying to hit their quotas, but they come and go throughout the year.
Right now, Mercedes-Benz “4 Payment Loyalty Accelerator Program” is available on dozens of models. Ford has a “2 Month early Bird Program” for some Mercury lease customers. Porsche also offers early return incentives for some vehicles.
Edmunds.com lists pull-ahead deals on the Incentives and Rebates page. Click on a vehicle and look in the “other” column.
Here are a few tips from Edmunds for anyone who receives a lease pull-ahead offer:
- Read the offer carefully so you understand all the terms, conditions and possible fees.
- Consider the mileage factor: Are you under the limits of your current lease or over it? What's the annual mileage on the new lease?
- Ensure that the drive-off fees from the first lease will carry over to the new lease.
- Contact your lease company and ask for the current "buyout amount" for your car. Compare that with the trade-in price. If value is higher than the buyout, you have equity in your car and you will be in a strong position to negotiate good terms on your next vehicle.
- Bankrate.com: Buy vs. Lease Calculator
- Consumer Reports: Car lease ads don't show the long-term cost implications for a leasing lifestyle
- Consumer Reports: Watch out for these sales pitches