When a car lease is expiring, you may need to decide whether to return the car and find a new set of wheels or do a lease buy-out and purchase the car.
Similar to buying a used car, when you purchase a leased car you can likely finance the transaction or pay for it with cash. But how can you know if buying a leased car 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, as well as the buyout price.
Below are some key things to know about lease buyouts that can help you make an informed decision.
The Advantages of Lease to Buy
One of the most obvious benefits of a lease buyout is that you already know the car’s history, which is something most used car buyers don’t have (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.
The Downside of a Lease Buyout
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 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.
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.
Ready for a Better Banking Experience?
Open a SoFi Checking and Savings Account and start earning 1% APY on your cash!
Is Buying Your Leased Car a Good Deal?
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.
Negotiating a Good Price for a Lease to Buy
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.
One technique that might motivate the dealer to help you is to agree to get your financing from the dealership.
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.
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. You can then decide later if you want to go with the dealer’s financing.
The Takeaway
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.
Looking to start saving to buy out your lease, or purchase a different car? SoFi Checking and Savings® may be able to help.
SoFi Checking and Savings is a checking and savings account that allows you to separate your savings from your spending while earning competitive interest on all your money.
SoFi® Checking and Savings is offered through SoFi Bank, N.A. ©2022 SoFi Bank, N.A. All rights reserved. Member FDIC. Equal Housing Lender.
SoFi Money® is a cash management account, which is a brokerage product, offered by SoFi Securities LLC, member
FINRA / SIPC . SoFi Securities LLC is an affiliate of SoFi Bank, N.A. SoFi Money Debit Card issued by The Bancorp Bank.
SoFi has partnered with Allpoint to provide consumers with ATM access at any of the 55,000+ ATMs within the Allpoint network. Consumers will not be charged a fee when using an in-network ATM, however, third party fees incurred when using out-of-network ATMs are not subject to reimbursement. SoFi’s ATM policies are subject to change at our discretion at any time.
SoFi members with direct deposit can earn up to 4.00% annual percentage yield (APY) interest on Savings account balances (including Vaults) and up to 1.20% APY on Checking account balances. There is no minimum direct deposit amount required to qualify for these rates. Members without direct deposit will earn 1.20% APY on all account balances in Checking and Savings (including Vaults). Interest rates are variable and subject to change at any time. These rates are current as of 3/17/2023. Additional information can be found at http://www.sofi.com/legal/banking-rate-sheet
Financial Tips & Strategies: The tips provided on this website are of a general nature and do not take into account your specific objectives, financial situation, and needs. You should always consider their appropriateness given your own circumstances.
External Websites: The information and analysis provided through hyperlinks to third-party websites, while believed to be accurate, cannot be guaranteed by SoFi. Links are provided for informational purposes and should not be viewed as an endorsement.
SOMN20118
