Lease Termination

Dealers generally assume that a customer who leases a vehicle will have the right to buy it at the end for the residual value. That is not always the case.

Pricing for a lease is generally based on three pieces: the residual which is the unamortized portion of the lease at which the lessor will own the vehicle if the buyer simply allows it to terminate, the upfront payment which is the amount paid by the lessee at the commencement of the lease, and the monthly payments which result from the spread of the portion of the lease after the upfront payment to be amortized over the term of the lease. Dealer personnel have become used to advising customers that they can simply buy the vehicle at the end for the residual value if they wish. However, that is not always true.

Sometimes, the lessor may include a fee for processing the sale of the vehicle to the lessee who exercises of the lease end purchase option. Dealers must be careful about that.

The fee may not be separately itemized. Instead, it may simply result in an increase over the residual value of the amount the lessee will have to pay to buy the vehicle. Consequently, when that happens, the representation by dealer personnel that the customer may buy the vehicle for residual value is not always accurate.

Before explaining that a customer has an option to buy a leased vehicle at the end of the lease, dealer personnel should check the amount shown on the lease as the amount necessary to buy it at lease end.

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