As you reach the final months of your car lease, you may be wondering about what comes next. Actually, the dealership might already be hounding you about the latest vehicles they have available for you to lease once you turn your current lease in.

But if you’ve found that the car you leased is your dream car or the best car you’ve ever driven, you might not want to let it go. A lease buyout gives you a way to keep the car you’ve fallen in love with. But buying the car you leased can have some drawbacks, so it’s imperative to know you are making the right choice. Debt.com is here to help guide you through the pros and cons of a lease buyout.

Table of Contents:

How much does it cost to buy a leased car?

If you are considering buying your leased car, you are probably wondering what that would run you. But before we dive into the cost, let’s take a closer look at the types of lease buyouts at your disposal:

  1. Lease-end buyout
  2. Early lease buyout

Lease-end buyout

The most common way to purchase the car you’re leasing is the lease-end buyout. You basically buy the car at the end of your lease. This has its advantages because you pay the residual value of the car by the end of your lease. Residual value is the expected value of the vehicle at the end of a lease agreement. It’s set when you sign your lease.

However, there are two variables you must consider before deciding whether or not your lease-end buyout is worth it. Begin by comparing the residual value of a car to its true market value. True market value is what the car is worth in today’s market and the price a car in the same condition is selling for.

If the car’s buyout price is less than that of the true market value, you will likely be making a profit. But a dealer will likely know this and may try to tack on fees, so be wary of the fees on the deal before you sign; always read the fine print. You will also have to pay sales tax for the buyout. Since you paid sales tax when you signed the lease, you effectively pay sales tax on the vehicle twice with a lease buyout. However, it can be a safer bet to buyout a lease for a car you have been maintaining rather than purchasing a used car with a history you are unaware of.

Early lease buyout

An early lease buyout does exactly what the name suggests—you purchase the car before the lease ends. Early lease buyouts are allowed by most lease contracts, but some may not allow it. Others may restrict the time—usually the first few months and/or the last few months—during which the lease may be purchased.

An early lease buyout will likely have added fees and finance charges. You have not paid the residual value of the vehicle yet, so the lease buyout cost will be higher in this case.

Negotiating the price

Buying a leased car can save the leasing company shipping and auction fees, which is why you may receive a call from a dealer offering you a lower buyout price than what is in your contract before you even step foot in the dealership. However, be aware that this may not be a good deal if the dealer is offering you retail price for the car when you should be aiming to buy the car at a wholesale price.

You will need to speak to a lease-end manager at the leasing company who can approve lower prices to negotiate a reduced buyout price.

Reasons to buy your leased car

If you love your car and absolutely can’t see yourself letting go, then you may be considering purchasing your car. But there are some questions you need to ask before you buyout your lease.

Consider the following:

  • Are you happy with the car’s overall performance?
  • Has the car needed few repairs and been fairly reliable?
  • Do you have to pay any excess fees for mileage or wear and tear?
  • Are there any other cars you’ve been eyeing for a similar price?
  • Can you outright buy the car, or will you finance?
  • If you are financing, will you be able to get a good interest rate?

Now let’s look at some of the common reason that people decide to do a lease buyout to help you assess if you’re making the right choice:

1. You can buy the car for less than it’s worth

If you can get the car for a good deal, then it’s definitely worth buying out your lease and making sure that car is yours. So, to break it down, we will take a look at two different scenarios to help you deduce when you are making out with a good deal.

A good lease buyout

Let’s say the Audi A3 you have been leasing is worth $16,000 in today’s market. And let’s say the lease buyout price listed in your contract is $16,500. The dealership has deemed the car to be 1,500 miles over your agreed mileage, which will cost you $1,500. And they have slapped on another $1,000 in wear-and-tear charges.

In this case, it would make sense to purchase the car because you would avoid paying $2,500 in fees.

A bad lease buyout

Now, let’s take a look at a different scenario. In this one, the lease buyout is at $15,000 for an Audi A3 but a prior year’s model. You followed the lease exactly as you agreed to and have incurred no fees. However, though the care is in perfect condition, it is appraised at $11,000 in this condition. And then you find the same make and model car for the lease buyout amount of $12,500 in the same dealership.

In this case, even though you love the car, you would take the option to buyout the lease of the available car in the dealership because you would keep from paying a $4,000 premium for your car and choose to save $2,500 on the newer vehicle.

2. You like the car and took good care of it

Maybe you are tired of jumping from one lease to the next, making consistent monthly car payments like a serial leaser. And if you like your car, but don’t want to deal with the hassle of finding another car, it may be prudent to compare the car’s buyout price to its retail price on websites like Edmunds and/or Kelly Blue Book.

Caution: You will likely no longer be protected by the bumper-to-bumper warranty. However, the powertrain warranty, which covers major parts like engines, transmissions and suspensions might still be valid. So, it may be a good idea to purchase an extended warranty.

3. You are facing a big punitive assessment

If the dealerships deems that you did not take as good care of the vehicle as you were supposed to, you may end up paying large fees for excess wear and tear or for exceeding the mileage cap. The mileage cap is usually 36,000 miles over a 36-month period. Then, this would be an ideal time to simply buy the car to avoid any of the punitive charges.

4. You want to avoid the hassle of car shopping

Although websites like Carvana and CarMax have streamlined the shopping process for cars, it can still be both taxing and exhausting. For some, however, shopping is a thrill ride and finding the best deals can be exhilarating. For others, it’s simply a matter of an end-of-lease deal generally being quicker than starting the process from scratch at a new dealership.

5. New and used car prices are higher

New cars have been selling like hotcakes! And car manufacturers have been struggling to meet the increasing demand for new cars. On top of that, the recent microchip shortage has added a dent in the auto industry’s attempts to keep up with or even meet consumers’ demand for new cars. As a result of the short supply of new cars, the supply of used cars appearing on dealers’ lots has thinned.

This means you could get a better deal by buying your leased car than trying to buy the same car off the dealership lot.

6. Your friend wants to buy your leased car

Selling your leased car to a friend is not a bad idea. But beware that you will likely have to pay sales tax. Try speaking with the finance manager at your local dealership and see if they will authorize a lease pass-through. This process involves the dealer buying your car and then selling the car to your friend. In this case, you are not charged for the sales tax and the dealer still makes out with a fair amount of money for pushing papers.

How to pay for your lease buyout

Choosing to buyout a lease may end up being an expensive endeavor. Although some people might have the cash on hand to buy the car outright, others need a more affordable monthly bill they can take on.

Thankfully, you can apply for a lease buy-out loan to finance your transaction. Some dealerships offer financing themselves, but make sure you shop around for the best rates and terms for that particular brand and model of car before heading to the dealer.

 

Lease Buying Chart
A graphic chart that goes over the dos and don’ts of a lease buyout.
Sources:

https://www.edmunds.com/appraisal/

https://www.dmv.org/buy-sell/leasing/car-lease-buyout.php

https://www.chase.com/personal/auto/education/leasing/lease-to-own-car

https://www.edmunds.com/car-leasing/buying-your-leased-car.html

https://www.nerdwallet.com/article/loans/auto-loans/5-times-buy-leased-car

https://www.bankrate.com/loans/auto-loans/tips-on-buying-your-leased-car/

https://www.bankrate.com/loans/auto-loans/what-is-a-disposition-fee/

https://www.creditkarma.com/auto/i/lease-buyout-what-to-know

https://askthemoneycoach.com/get-best-deal-leasing-new-car/

https://www.lendingtree.com/auto/dealer-fees-when-buying-a-car/

https://www.thebalance.com/what-is-residual-value-4176351#:~:text=Key%20Takeaways%201%20Residual%20value%20is%20the%20expected,your%20monthly%20lease%20payment%20amount.%20More%20items…%20

https://www.experian.com/blogs/ask-experian/how-to-negotiate-a-car-lease/

https://www.calculator.net/lease-calculator.html

https://redmountainfunding.co/blog/car-lease-buyout-options-know-the-pros-and-cons/

https://www.creditkarma.com/auto/i/extended-car-warranty

https://www.cars.com/articles/pros-and-cons-of-cpo-versus-an-extended-warranty-1420683372186/

https://www.cartalk.com/extended-warranties/what-do-vehicle-extended-warranties-cover

https://blog.protectmycar.com/fees-associated-leasing-car

https://www.autotrader.com/car-shopping/5-reasons-buying-your-leased-car-209158

https://www.vatrials.com/blog/compensatory-vs-punitive-damages/

https://www.consumersafety.org/resources/punitive-damages/

Article last modified on November 11, 2021. Published by Debt.com, LLC