What are my options at the end of my lease agreement?
About six months before the end of your lease agreement, you should be looking at your next steps.
There are a few options at the end of your lease agreement, and each option is suited to different people and situations.
In this article, we are going to look at the options you have at the end of your lease contract, and how to go about them.
What are my options at the end of my lease agreement?
You have three options at the end of your lease agreement, and we are going to talk about those options in detail in this article. Your options are as follows;
- Hand the car back
- Buy the car (via a third party)
- Extend your contract
It should be noted that the last two options are not always available, it depends on the finance house. However, it is possible, which is why we are going to talk about them in this article.
Hand the car back
If your lease is coming to an end, then you can hand it back to the lease company. This is what often happens with lease contracts and is usually why people go for a lease contract rather than a purchase agreement.
There are many reasons why you would want to hand your car back, for example;
- You simply want a new car
- A new car will have an updated specification, a better engine, lower CO2 emissions, more safety features etc.
- The car will soon be outside of the warranty
- Your situation has changed
- For example, if you are starting a family and need something bigger
- Or perhaps you have more disposable income and want to splash out on a nicer car
- Alternatively, you could be moving to a more built up area and therefore want something smaller and more affordable to navigate the city streets
Whatever your reason, handing your car back is standard practice when it comes to leasing a car, therefore the process is very simple.
What happens when I hand my car back at the end of my lease agreement?
What happens when you hand your lease car back depends on the finance house.
The finance house may contact you to arrange delivery, or you will have to contact them. It is advisable to ask them beforehand and to make a note of when your car is due to go back in your diary. If you are supposed to contact the finance house they will leave it up to you and you will still be paying for the car and racking up the miles while doing so. If they contact you, then they will do so when necessary.
Again, whichever finance house you go through depends on who they have connections with. Some have connections with national dealer groups. The national dealer groups will host internal auctions strictly for dealerships. Your car will be auctioned off before the contract comes to an end. Though don’t worry, they won’t be able to pick it up before it is due to go back, you won’t get someone banging on your door demanding to take your car away two months before your contract is up!Other finance houses have connections with auction houses. The auction house will pick the car up, appraise it and inspect it (more on that in a bit). They will take the car to the auction house where it will be sold.
If you are going to hand your car back, then we advise you start looking for a new car a few months before your current car is due to go back. This allows enough time for the order and delivery of your new car, ensuring that you are not without a car. You can read more about when you should start looking for your next vehicle here.
Your car inspection
When you lease a car, you are responsible for keeping it in good condition. It is easy to think that because the car isn’t yours that you don’t have to take care of it, but this is not the case. We’re sure that you don’t think like that, but there are some people that do.
When your lease contract is up, your car will be inspected for any damage. This will either happen a week before the car is due to go back or on the day of return. If your car is inspected the week before, then you will be told if you need to get anything fixed. If it is inspected on the day of return and there is damage, you will receive a bill for the damage a few weeks later.
Your vehicle will be inspected using the BVRLA Fair Wear and Tear Guide. This is the industry guideline for what is allowed for and what isn’t in terms of damage on a lease car.
We advise that, a few weeks before your car is due to be returned, you find yourself a BVRLA Fair Wear and Tear Guide and you inspect your car yourself. Be fair, or even be a little bit hard on yourself. If you think that there is damage that goes beyond fair wear and tear, then we advise you get it fixed before the inspection.
The reason for this is that you can then shop around and find the best repair deal. The finance house will not do this, and therefore you could end up paying more money if it goes back damaged. You can read more about damage costs on your lease car here.
So that is one of the options, you can hand your lease car back, and get another brand new one.
Buy your lease car
This doesn’t always happen, some finance houses will not allow it. The reason being, lease cars aren’t meant to be bought at the end of the contract, the contract is designed for the vehicle to be handed back. That said, we have seen it happen and there are ways you can do it.
If you are a business, then you have less of a chance of simply purchasing the vehicle. This is because, on a lease contract, you can claim the VAT back which we are assuming you have done. In the eyes of HMRC, by buying the vehicle you have turned the lease agreement into a purchase agreement and therefore should not have claimed the VAT back. There is a chance that they will then request you pay the VAT back plus interest.
However, there is a way around this. You will ring your finance house and ask them for a purchase price. Some will give you a price and others won’t. If they do give you a price, then you can find a third party to buy that car. Whether they then sell the car to you is your business.
If you are a private customer, then you haven’t been claiming the VAT back. This means that some finance houses will let you buy the vehicle at the end of the contract. To do this you will ring them and ask for a purchase price.
However, this is not always an option, we can’t guarantee that the finance house will allow you to do this. Therefore, if you think that you are going to buy the vehicle then we recommend you ask the finance house a few months in advance. This then gives you the opportunity to make other arrangements should this not be possible.
Extending your lease agreement
Your final option is extending your lease agreement. You may decide that you want to do this option if your new car isn’t going to be delivered for a few months, or you simply want a bit longer with your current lease car. Again, we can’t guarantee that this will happen, the finance house may allow you to extend your contract but they may not. It is worth asking the question though.
You will have to ring the finance house and tell them you want to extend the contract, and how long you want to extend it for. If it’s for a month or two while you await delivery of your new car, then they may allow you to keep your car on an informal basis until your new car is delivered.
However, if it is longer, then they may allow you to keep the car on a more formal basis. You can extend your lease contract for up to 12 months. The finance house may recalculate the price of the contract based on the mileage and the condition of the car. This means that your monthly payments could increase. It should also be noted that if you have had your car for three years already (or will have when the contract is up) then you may be outside of warranty, and you may have to get the car MOT’d to depend on how long you have it. This means that you may end up paying for repairs, which is something you will have to budget for.
Again, we recommend asking the finance house a few months before the contract is due to end. This is to ensure that you can make other arrangements if they do not allow you to extend your contract. You can read more about extending your lease contract here.
What is the alternative if I can’t extend my lease contract?
If you can’t extend your lease contract and you are going to be without transportation, then your other option is a short-term rental.
A short-term rental is for 3 to 12 months and costs significantly less than your traditional daily rentals. If you need a car but can’t extend your lease, then this is a viable option for you. You can read more about short-term rentals here.
In conclusion, you have three options at the end of your lease contract; hand the car back, buy the car (via a third party) or extend your lease contract. It is not guaranteed that you will be able to buy your lease car or extend your contract, but there are times when you can. We advise that you start thinking about your options around six months before the end of your lease contract. This is so you can plan your next steps well in advance. This avoids unnecessary stress and also means that you won’t be in a situation where you do not have a vehicle. Hopefully, this has given you some insight into your options at the end of your lease contract, and if you are in doubt, then please don’t hesitate to contact us.