Buying Out A Leased Car: Should You Do It?
Have you grown attached to your leased car? If so, you may want to consider a “car lease buyout,” which means purchasing it from the leasing company when your lease term ends.
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Your lease agreement/contract likely states a buyout price that was determined at the start of the lease. However, this price could be negotiable. Depending on the current value of your car, doing a car lease buyout could make good financial sense. And although purchasing a leased vehicle could save you time and money, there are several important caveats to consider, which we will discuss here.
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Deciding whether or not to buy your leased vehicle can be tricky, so read-on for details on how to buy your leased car successfully.
How A Lease Buyout Works
All car leases have an end date. About 30 to 90 days prior to the end of your lease, the leasing company will contact you as a reminder and ask if you are interested in a car lease buyout.
The buyout price will be stated in your contract and is based on what the leasing company predicted the residual value of the car would be at the end of the lease term.
If you can afford to buy the car, research on the car’s value. Online car valuation resources available include Edmonds.com, Kelley Blue Book, Carvana, and others. Once you have a good idea of what the car is worth, you can start negotiating the buyout price with the leasing company.
Buying out a leased car will require that you either pay cash or get a car lease buyout loan. Not all financing is created equal, so research loan rates.
How Much Does It Cost To Buy A Leased Car?
The buyout price will depend on factors that are unique, such as the year, make and model of the car, residual value, and the current value (which may turn out to be higher or lower than the residual value). Whether or not you contribute a down payment will also affect the final price.
Other cost and fees will include:
- Buyout Fee/Purchase Option Charge: The leasing company will charge you for opting to buy the car rather than turning it in.
- State sales tax on the final purchase price.
- A new insurance policy.
- Title transfer and registration fees: These and other fees may be paid to your state’s Department of Motor Vehicles.
How To Pay For A Car Lease Buyout
As mentioned above, paying cash is an option, but in general, you will need to obtain a car lease buyout loan.
Start by speaking with your credit union or bank where you currently have an account. You may get a better, lower interest rate from a lending institution where you already have a banking relationship. Other financing options are with the leasing company or an online lender.
If you know in advance that you may be interested in a car lease buyout, you can start saving for a down payment. Any money you put down on the purchase will reduce the loan amount you need to borrow.
Having a good credit score will also help you get a low rate (APR) on the loan. If you have bad credit, don’t worry, you may still be eligible for a car loan. Learn more at, How to Get a Car Loan with Bad Credit
Whether you pay cash or get financing, compare lenders and rates so you have a monthly payment you can afford. You may also want to compare the estimated monthly payment and fees for a loan buyout with the option to purchase a new car. For more details read, Where to Get a Good Car Loan
When Does it Make Sense to Buy A Leased Car?
There are times when it makes sense to buy your leased car and times when it doesn't make sense financially or practically. Here are some instances when it DOES make sense to do a car lease buyout loan.
Price To Buy Is Less Than Market Value:
If the lease agreement has a lower buyout price than the car is currently worth, it’s a good time to buy. Recent supply chain issues have led to a shortage of good used cars, which has driven up the prices. It could make good financial sense to do a buyout and continue to drive the car or sell it for a profit.
The Car Is In Great Shape:
If you’ve taken great care of the car, you may want to keep it, especially if the alternative is buying a used car. A least you know you car’s history.
You're Way Over Or Under Your Allowed Mileage:
If you’re under your allowed miles, this could benefit from buying a car that’s in great condition with low miles, and save money buy not having to buy a new car. If you have excess miles buying the car could save you thousand of dollars in excess mileage fees.
Your Car Has Excess Wear and Tear:
If you have damage and/or wear and tear, this could cost thousands when you turn the car in. Keeping the car can save you money.
You Can Negotiate A Lower Buyout Price:
Buying the car will save the dealership or leasing company money they would otherwise need to spend fixing up the car for resale or auction. For this reason, they may be willing to negotiate down the buyout price and waive the disposition fee (the cost of cleaning up the car for resale.)
You Can Do A Lease Pass-Through:
A lease pass-through (or third-party buyout) is a transaction where you as the lease-holder sells the car to a third-party (a friend or other person), you then pay the lease company the residual fees associated with ending the lease, and the new owner takes possession of the vehicle. This could be profitable for lessees if your car has a higher market value than the purchase option. In this type of transaction the lessee doesn’t pay sales tax.
You Like The Car:
Why give up the car if you like it? Run the numbers and if you can afford to purchase the car, then you can continue to drive a car you love!
Why You Shouldn't Buy Your Leased Car
Here are some instances when you shouldn't consider buying your leased car:
Fewer Options to Negotiate Price:
If the leasing company is not negotiable on the buyout price then you could end up paying more than the car is worth.
Lease Purchase/Buyout Fee:
This fee is an add-on charged by the leasing company when someone opts to purchase their leased car. This can be a few hundred dollars.
The Buyout Price May Be More Than The Car's Worth:
Any time the buyout price is more than the value of the car, it’s a bad idea to buy it. If you need a car loan to finance that purchase you could end up paying high interest that would further add to the total cost of the purchase.
How to Buy Your Leased Car
If you’ve decided that a lease buyout is the right move, here are some things to know before you go through with the transaction:
Determine Your Car's Value:
Visit Edmonds.com, Kelley Blue Book, Carvana, and other online car valuation sites to determine your car’s value.
Review Lease Contract/Agreement Terms:
Look for the buyout price stated in your agreement and compare it to the current car value. Is the current value higher or lower? If the current value is higher, it’s a safe bet to move forward. Make a list of all the fees associated with both turning in the car and buying it.
Run The Numbers:
Add up the fees that you know you will have to pay to turn-in the car – this includes wear and tear, excess mileage, etc. Look at these fees compared to the fees associated with doing a buyout (some of these fees may be waived by the leasing company). Which option is most financially favorable?
Contact Your Leasing Company:
If the company hasn’t called you, you may want to call them. But many lease experts recommend waiting for the call, so you don’t sound too anxious to buy the car, which could work against you in negotiating a buyout price.
Shop Different Lenders:
If you need financing, talk to your current credit union or bank about lease buyout loan interest rates.
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