When a car lease is expiring, you will likely need to decide whether to return the car and find a new one or do a lease buy-out and purchase the car.
Similar to buying a used car, when buying a leased car, you may be able to finance the transaction or pay for it with cash. But how can you know if buying out a car lease makes sense?
The decision will depend on your budget, how much you enjoy driving your leased car, the mileage you’ve put on the car, and the buyout price.
Read on for some key information about a car lease buyout that can help you make an informed decision.
What Does It Mean To Buy Out a Car Lease?
Buying out a car lease involves purchasing the car when your lease agreement comes to an end. It’s a fairly common process, and most lease agreements offer a buyout option. Your leasing company may even reach out to you with different options as the lease agreement nears its end.
Sometimes you can even purchase the car before the lease officially ends. Check your lease agreement to see what the terms are.
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How Does Buying Out a Car Lease Work
Wondering how to buy your leased car? First, consult your lease contract to find out the terms and the buyout price. If you don’t see the information there, contact the car dealership.
Next, evaluate the condition of the car. How much is your car really worth? Is it in good enough shape that buying it makes sense? Or does it have a lot of wear and tear or require repairs or expensive maintenance? Then, shop around to see if you can get a better price on the same car elsewhere. You may even be able to negotiate the price of your leased car with the dealership. This isn’t always an option, but it’s worth a try since you want to get the best rates for a lease buyout.
If you decide to go ahead with the purchase of the leased car, apply for financing if needed, and follow the process for purchasing the car.
Pros and Cons of Buying Out a Car Lease
Buying a leased car can sometimes make sense, but it’s not always the best option, depending on the purchase price and the condition of the car. Here are some advantages and disadvantages to consider before buying out a car lease.
Pros of Buying Out a Car Lease
One of the most obvious benefits of a lease buyout is that you already know the car’s history, which is something you likely won’t have when buying a used car (even if you get a used vehicle report, it won’t contain every detail).
If you’ve maintained your car meticulously and always kept it garaged, then you know that you would be purchasing a car that is in excellent condition.
On the flip side, if you haven’t cared for the car as well as you could have, a buyout can be an advantage as well.
That’s because most leases include extra fees for unusual wear and tear on a vehicle, which may show up during the inspection. Keeping the car can be a way to stave off that extra expense.
The same goes if you’ve put a lot of mileage on the car. If you’ve gone way over your lease’s mileage limits, a buyout can be more enticing because it allows you to avoid paying penalties for going over your lease’s limits.
Another potential plus to a buyout is that it can get you out of the lease cycle. When it comes to buying vs. leasing, purchasing a car may end up costing you less in the long run.
While buying typically involves higher monthly costs than leasing, you actually own something in the end. With leasing, you may have lower payments, but you can also get stuck in a cycle of never-ending car payments since you’ll never own the car free and clear. Creating a budget can help you see which option makes more financial sense for you.
Cons of Buying Out a Car Lease
One of the nice things about a lease is that you will always experience a relatively new vehicle every time you renew. For many drivers, the potential extra cost of perpetually leasing is worth that peace of mind.
If you opt to end the lease cycle and buy your car, one downside is that you’ll no longer be driving a new car. In determining the cost of ownership, you will likely also want to factor in the cost (and hassle) of car maintenance and repairs as the car gets older.
Your monthly expenses might also go up. If you buy out your lease and don’t make a new down payment, your monthly payments will likely be more expensive than your current lease payment. This is something to consider if you’re working to manage your money better.
Another potential downside to buying your leased car is that you may not be getting the best possible price for a used car.
When you get the option to buy a leased car, the vehicle is typically just a few years old and its residual value can be pretty high. It’s possible you could get a better deal by saving up for a car and buying a similar used vehicle on the open market.
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Is Buying Your Leased Car a Good Idea?
Before deciding whether to buy your leased car, you may want to compare the buyback price from your lease to the current resale value of the car.
The price of a lease buyout will be based on the car’s residual value, which is the purchase amount set at lease signing, based on the predicted value of the vehicle at the end of the lease.
You can often find this number — it may be called the “buyout amount”, “residual amount,” or “purchase option price” — on your lease contract. If you make your payment online, you may be able to find it by logging onto your account or by calling the bank that holds your lease.
Once you’ve got this number, you can use one of the many online car appraisal tools — such as Kelly Blue Book, Edmunds, or the National Automobile Dealers Association — to help you calculate the trade-in, buyback, and new car fair purchase price of your leased car.
To get the most reliable numbers, you’ll want to be as accurate as you can when you plug in the information about your car, including the manufacturer, options, and current condition.
If your buyout amount is considerably less than the average retail price, and you like the car, buying your car from the leasing company could indeed be a good deal.
Even if it looks like you would end up slightly overpaying, you may not want to dismiss the buyout option altogether.
Buying your leased car may still be a good idea if you’re going to get hit with pricey mileage charges when you return the car. This could end up making the buyout price a better deal than buying a similar used car on the open market.
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3 Tips for Getting a Good Price on a Car Lease Buyout
It can be tricky to try to haggle the price of a buyout, since dealerships typically don’t net a profit from selling you a leased car. But it makes sense to try negotiating for a better deal. These tips could help.
Opt for dealer financing
One technique that might motivate the dealer to help you is to agree to get your financing from the dealership. This could work to your financial benefit as well: Since dealers often have a number of lenders to choose from, they may also be able to get you a lower interest rate for the buyout loan than you might be able to get from your own bank or credit union.
Get a preapproved loan
It can still be a good idea to get a preapproved car loan from your bank or credit union before you go to the dealer so you know what rate you can qualify for. If you originally had a good credit score to lease a car in the first place, and you still do, that may help you get a more favorable rate.
Some people even work at building credit by leasing a car. If you made your lease payments on time and your credit strengthened in the process — again, that might work to your advantage in terms of rates you might qualify for.
Once you see what rate you can get for a car loan, you can then decide later if you want to go with the dealer’s financing for the car lease buyout.
If you can’t get a lower buyout price for the car, ask to have fees such as transaction or document fees waived or lowered. You can request an itemized list of buyout fees from the dealer and see if you can get them to bargain with you on some of them. If so, this could help you save money.
Deciding what to do with your leased vehicle when the contract is up can require a little bit of research, and also some math.
It can be a good idea to compare the buyback price to what the car would go for on the open market. You may also want to factor in any additional charges, such as mileage fees, that could make buying out the lease more attractive.
Should you decide to buy the car (or to purchase a different car) and would need to take out a loan to do so, it can also be important to consider what kind of price, down payment, loan term, and interest rate you can afford. Then you can start putting away money in a savings account to buy out your lease, or purchase a different car.
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Can you negotiate the buyout of a lease?
You may be able to negotiate the buyout of a car lease — it typically depends on where the lease contract originated. If it came from the finance department of the car manufacturer, you may not have much leeway. These finance departments are considered “captive lenders,” which means they likely won’t negotiate with you. If your car lease was written by a bank, however, you may have more flexibility for negotiation.
What is the downside to buying out a lease?
One disadvantage of buying out a lease is that you’ll no longer be driving a new car every few years. And once you own the car, it may cost more to maintain and repair it as it gets older.
In addition, if you buy out your lease and don’t make a new down payment, your monthly payments will likely be more expensive than your current lease payment.
Finally, by buying your leased car, you may not be getting the best possible price for a used car. You might be able to buy a similar used vehicle on the open market for a better price.
Is it smart to buy a car that you have leased?
It can sometimes be beneficial to buy a car you’ve leased. For instance, if the buyout price of the car is a lot less than the average retail price, buying out your car could be a good deal.
Also, if you’ve kept the car in excellent condition, it may make sense to buy out the lease rather than buying another used car and not knowing the true condition of the vehicle. Plus, you’ll actually own something in the end once the lease is paid off.
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