Drivers find buying out car leases is the smartest financial move

October 12, 2022 at 9:01 AM·3 min read

Andrew Lokenauth has been getting brand new cars every three years for as long as he can remember, but he has never outright purchased a vehicle.

“I’ve always leased, and I’ve always gotten every penny out of my leases,” said the 35-year old financial analyst from Tampa, Florida.

Fast forward to 2022 and Lokenauth has decided that buying out the lease on his 2019 Honda Accord EX-L makes better financial sense than simply returning the car — for the first time ever.

That’s because the vehicle’s current market value is several thousand dollars higher than the residual value, which is a leasing company's educated prediction of what the vehicle would be worth in 2022.

“No one could have foreseen the impact the global pandemic and subsequent chip shortage would have on residual values, which were set to levels on par with predicted prices set in years prior,” said Ronald Montoya, senior consumer advice editor at edmunds.com. “Buyout prices are a good deal compared to the value of current inventory on dealer lots.”

“Unless you have a good reason to lease, it’s a good idea to buy the car outright,” he added.

RICHMOND, CALIFORNIA - MAY 06: Used cars for sale are displayed on the sales lot at K&L Auto Expert on May 06, 2022 in Richmond, California. Wholesale used-car prices continue to fall with a 1 percent drop from March to April. Prices have fallen 6.4 percent from a record high in January of this year but remain higher than usual. (Photo by Justin Sullivan/Getty Images) — Used cars for sale are displayed on the sales lot at K&L Auto Expert on May 06, 2022 in Richmond, California. Wholesale used-car prices continue to fall with a 1 percent drop from March to April. Prices have fallen 6.4 percent from a record high in January of this year but remain higher than usual. (Photo by Justin Sullivan/Getty Images) (Justin Sullivan via Getty Images)

“Some consumers have had as much as $10,000 in positive equity on their 2019 leases,” said industry expert, Zach Klempf, Founder and CEO of Selly Automotive, a a dealership software company recently acquired by Beekman Group. "This is the first time in history where non-collectible, common vehicles have significant positive equity.”

Why not just apply the equity toward a brand new car? The latest and greatest model?

“The equity people have in their lease may reduce the sting and help offset the costs of car ownership, but market pricing isn’t great right now,” said Matt Jones, industry education expert with TrueCar, an online car-buying platform.

Indeed.

New vehicle prices actually set a new record in July: $48,182, according to Kelley Blue Book, an automotive research firm. That’s up 12% from the prior-year period. And while prices have retreated some, according to the latest inflation readings, they are still high.

Not only is new vehicle affordability significantly worse than it was a few years ago, but interest rates are rising and incentives are virtually non-existent.

“Everyone’s paying sticker or above,” said Nathan MacAlpine, Founder of CarMate, an LA-based car broker that works with dozens of dealerships and independent lots throughout the US. “Things aren’t going to settle down until the end of 2023, beginning of 2024.”

Like many consumers, Lokenauth would rather wait things out. “My old Honda cost $249 a month for 36 months with $1,499 due at signing,” said Lokenauth. “If I wanted to lease the 2022 Honda Accord, it would cost me $320 a month with $2999 due at signing - that’s $70 more a month and $1500 more due at signing, which is a total of $4000 more.”

Lokenauth said he plans to keep his car for a few more years and then sell it on his own.

“I’ll either break even or pocket a few dollars,” said Lokenauth, who is in the process of refinancing his auto loan with a credit union at a 4.5% interest rate. “This is going to keep my payments in line with what I’m currently paying, and I can apply any savings toward my retirement.”

Personal finance journalist Vera Gibbons is a former staff writer for SmartMoney magazine and a former correspondent for Kiplinger's Personal Finance. Vera, who spent over a decade as an on-air financial analyst for MSNBC, currently serves as co-host of the weekly nonpolitical news podcast she founded, NoPo. She lives in Palm Beach, Florida.

Get the latest personal finance news, tips and guides from Yahoo Money.

Follow Yahoo Finance on Twitter, Instagram, YouTube, Facebook, Flipboard, and LinkedIn.

Reuters
Exclusive-Huawei aims to mass-produce newest AI chip in early 2025, despite US curbs
China's Huawei plans to start mass-producing its most advanced artificial intelligence chip in the first quarter of 2025, even as it struggles to make enough chips due to U.S. restrictions, said two people familiar with the matter. The telecoms conglomerate has sent samples of the Ascend 910C - its newest chip, meant to rival those made by U.S. AI chipmaker Nvidia - to some technology firms and started taking orders, the sources told Reuters. Huawei is at the heart of U.S.-China friction over trade and security.
Associated Press
Rain and snow pummel Northern California in latest wave of damaging weather to strike West Coast
A major storm pummeled Northern California with rain and snow on Wednesday night and threatened to cause flash flooding and rockslides in the latest wave of damaging weather to wash over the West Coast. The National Weather Service extended a flood watch into Saturday for areas north of San Francisco as the strongest atmospheric river — a large plume of moisture flowing onshore — that California and the Pacific Northwest has seen this season inundated the region. The storm system unleashed winds the night before that left two people dead and hundreds of thousands without power in Washington state.
Time
Why the U.S. Launched an International Network of AI Safety Institutes
Commerce Secretary Gina Raimondo emphasized the importance of integrating security with innovation when it comes to something as rapidly advancing and as powerful as artificial intelligence.
AFP
World still split over money as clock ticks on COP29
A fresh draft deal published Thursday at the deadlocked COP29 climate talks shows rich and poor countries still divided as time runs out to strike a finance agreement for developing nations.The draft reflects the broad and opposing positions of developed countries -- which are obligated to pay climate finance -- and the developing countries that receive it.
AFP
India's Adani Enterprises tanks after founder's US charges
Shares in India's Adani Enterprises slumped 20 percent at Thursday's open after US prosecutors charged billionaire industrialist founder Gautam Adani with paying hundreds of millions of dollars in bribes and hiding the payments from investors.Founder Gautam and two other board members are accused in the indictment of orchestrating "an elaborate scheme to bribe Indian government officials to secure contracts worth billions of dollars", US attorney Breon Peace said in a statement.
AFP
Swiss region to vote on cost of 'blasphemous' Eurovision 2025
Basel voters will decide Sunday on whether to spend tens of millions of dollars to host the 2025 Eurovision Song Contest, with opponents decrying a "waste" of public funds for a "blasphemous" music performance. He slammed "blasphemic performances", some verging on "the occult", decrying that this year's performance by Irish artist Bambie Thug as "almost a public form of Black Mass".
Associated Press
North Korea and Russia agree to expand their economic cooperation
North Korea and Russia reached a new agreement for expanding economic cooperation following high-level talks in Pyongyang this week, the North’s state media said Thursday, as they continue to align in the face of their confrontations with Washington. The Russian news agency Tass on Tuesday said officials following an earlier round of talks agreed to increase the number of charter flights between the countries to promote tourism.
Associated Press
At UN climate talks, a draft of the deal gives little clarity on climate cash for developing nations
A new draft text released early Thursday which will form the basis of any deal reached at United Nations climate talks on money for developing countries to transition to clean energy and adapt to climate change left out a crucial sticking point: how much wealthy nations will pay. Negotiators at the talks — known as COP29 — in Baku, Azerbaijan, are trying to close the gap between the $1.3 trillion the developing world says is needed in climate finance and the few hundred billion that richer nations have been prepared to pay.
Associated Press
Southeast Asian defense chiefs discuss regional security with US, China and other partner nations
Southeast Asian defense chiefs met Thursday with China, the United States and other partner nations in Laos for security talks, which come as Beijing’s increasingly assertive stance in its claim to most of the South China Sea is leading to more confrontations. The closed-door talks put U.S. Secretary of Defense Lloyd Austin and Chinese Defense Minister Dong Jun in the same room a day after Dong refused a request to meet with Austin one-on-one on the sidelines of the ASEAN Defense Ministers Meetings.
Reuters
BOJ Ueda says will 'seriously' take into account FX impact on economy, prices
Bank of Japan Governor Kazuo Ueda said on Thursday the central bank will "seriously" take into account foreign exchange-rate moves in compiling its economic and price forecasts. On monetary policy, Ueda reiterated that the BOJ will reach a decision "meeting by meeting" on the basis of information that becomes available. There is still a month to go until the BOJ's next policy meeting in December, he noted, adding that there will be more information to digest by then.
Associated Press
Alabama to use nitrogen gas to execute man for 1994 slaying of hitchhiker
An Alabama prisoner convicted of the 1994 murder of a female hitchhiker is slated Thursday to become the third person executed by nitrogen gas. Carey Dale Grayson, 50, was one of four teenagers convicted of killing Vickie Deblieux, 37, who was hitchhiking through Alabama on her way to her mother’s home in Louisiana. Alabama this year began using nitrogen gas to carry out some death sentences, the first use of a new execution method in the United States since lethal injection was introduced in 1982.
Associated Press
Why people are protesting over a deadly roof collapse in Serbia
The deadly collapse of a concrete roof at a rail station in Serbia has raised tensions across the Balkan county, fueling widespread anger toward the government and protests after the failure claimed 15 lives in the northern city of Novi Sad. Officials have offered conflicting information about whether the roof was part of the renovation, and its maintenance is under scrutiny. The collapse became a flashpoint for broader dissatisfaction with Serbia's authoritarian rule, reflecting growing public demands for transparency while the country undertakes large infrastructure projects, mostly with Chinese state companies. What do we know about the collapse?
Associated Press
At UN climate talks, "sewage" beer from Singapore highlights water scarcity and innovations
In the sprawling pavilion section of the United Nations climate talks, where countries, nonprofits and tech companies use big, flashy signs to get the attention of the thousands of people walking through, small aqua and purple beverage cans sit conspicuously on a counter at the Singapore display. “I can even suggest that they make more and more of this kind of beer,” added Mbouamboua with a smile, sharing it was his third day in a row he stopped for a can. NEWBrew is made in Singapore with NEWater, the name of treated wastewater that's part of a national campaign to conserve every drop in one of the world’s most water-starved places.
CNN
Indian international students in the US outnumber Chinese for the first time in 15 years
For more than a decade, Chinese students have flocked to the United States, drawn by the prestige of an overseas education and the glamor of the American Dream. But that’s changing now – and recent statistics suggest the allure may be wearing off.
Associated Press
Papuan women's mangrove forest in Indonesia is increasingly threatened by development and pollution
On the southeastern coast of the city of Jayapura, Petronela Merauje walked from house to house in her floating village inviting women to join her the next morning in the surrounding mangrove forests. Merauje and the women of her village, Enggros, practice the tradition of Tonotwiyat, which literally means "working in the forest." For six generations, women from the 700-strong Papuan population there have worked among the mangroves collecting clams, fishing and gathering firewood.
Associated Press
Volcano on Iceland's Reykjanes Peninsula erupts for the 7th time in a year
It was its seventh eruption since December. Iceland’s meteorological office that monitors seismic activity said Wednesday’s eruption occurred at 11:14 p.m. creating a fissure around 3 kilometers (1.8 miles) long, but estimated the eruption is considerable smaller than the previous eruption in August.
Associated Press
Trump's incoming chief of staff is a former lobbyist. She'll face a raft of special interests
As incoming White House chief of staff, one of Susie Wiles ’ vexing challenges will be policing the buffet line of powerful interests who want something from Donald Trump. During Trump’s first presidency, she lobbied for many of them. Trump was first elected on a pledge to “drain the swamp” in Washington.
CNN
Vance debuts new role as Trump’s point person on Capitol Hill
After rarely being seen in public in the two weeks since he delivered a brief, 46-second victory speech on election night, JD Vance reemerged this week to play one of the most important roles he will be expected to fill as Donald Trump’s No. 2: His point person on Capitol Hill.
CNN
‘It’s impossible to breathe’: Life in the world’s most polluted city
Inside Delhi’s first ever clinic dedicated to pollution-related illnesses, Deepak Rajak struggles to catch his breath.
CNN
Laken Riley’s killer sentenced to life in prison after heart-wrenching pleas from her family
A man accused of killing Georgia nursing student Laken Riley while she was out for a run earlier this year was found guilty Wednesday and sentenced to life without parole in a case that reignited the national debate over immigration and crime.

Latest Stories