lease buyout means the purchase of a leased vehicle at the end of the lease or sometime before the lease originally ended. Leases typically include a purchase price option that is established when the lease is signed.
“The person leasing the vehicle would have to pay the amount of the residual value of the vehicle in addition to the remaining lease payments under the contract, plus sales tax on the purchase and a disposal fee to the dealer,” it says matt smith, deputy editor of cargurus, an online vehicle marketplace.
tips for buying a lease
If you’re considering buying a lease, first confirm that it’s an option. Once you’ve done that, do your homework and understand how factors like time, car value, and financing will affect the price you pay. These five tips will put you on the road to driving with the car you want and a great deal.
1. think about the time of the lease
In some cases, the question may not be how to buy your lease but when to buy it, since the time of purchase changes the price you will pay.
If you decide to buy before your lease is up (known as an early buyout), you may have to pay additional fees or finance charges. Check the terms of your lease carefully to see how the leasing company handles advance purchases. if there are too many fees, wait until the end of the lease to buy.
“You can often get the best possible deal on the car if you wait until the end of the lease term to buy the car,” says Sean Pour, co-founder of car-buying service SellMax. “Once the lease is almost up, the dealer will have to think about reselling the car and they will prefer to sell it to you.”
If you decide to buy before the lease is up, make sure the leasing company doesn’t misconstrue your interest in an early purchase as a desire to terminate the lease early. be clear that you want to get the car, not get rid of it.
2. assess the value of the car
Research both types of car value when planning to buy your lease.
- retail value: how much you would pay to buy the car from a dealer.
- wholesale value: how much a dealer would pay to buy the car at auction.
for detailed pricing information, check sources like kelley blue book, cars.com, truecar and edmunds. Please have all relevant information ready when you do your research, including make, model, model, model year, and current mileage.
“I tend to tell people that searching on sites like craigslist is a good option because you’ll see how much the car is actually selling for in your area,” pour says.
Next, compare your findings to the residual value of the car on your lease. Leases typically combine the residual value with a purchase option fee, if applicable, to estimate how much the leasing company will charge you for the car purchase.
By doing independent research, you can develop your own estimate of what you should pay. If your numbers and the leasing company’s numbers are too different, you may want to consider returning your lease and simply buying a different used car.
3. look for financing
The leasing company will likely offer to finance the purchase through them, but don’t say yes until you’ve explored other financing options. Otherwise, you could be forced to pay interest due to dealer margins.
You may be able to get a better interest rate from your own financial institution than from the leasing company or dealer, says Nathan McAlpine, founder and CEO of Carmate. there are no fees or penalties if you choose not to go with the leasing company.
In addition to lending money for new and used cars, some lenders offer car lease buyout loans that work like refinance loans. “Lenders that offer auto loans typically also offer loans to buy a lease,” says Steve Sexton, CEO of Sexton Advisory Group, a financial services firm. “But the annual interest rate on a lease purchase loan is generally higher than on a new car.”
As with any auto loan, the key to getting a great deal is shopping around. Check out lease purchase loans from banks, credit unions, and online lenders. This way, the leasing company will have to beat the best deal they’ve found on their own. this is particularly true if you have a strong credit score, pour says. “finance companies will be happy to have you and will even compete on rates.”
4. let the leasing company make the first move
You may feel like you can’t wait to contact the leasing company to discuss buying out the car lease, but take a moment to hit the brakes. taking the first step could ruin your chances of negotiating favorable terms, according to consumer advocates.
Typically, the leasing company will call about 90 days before the lease expires. if you contact the company before the countdown begins, you may know how much you want to buy the car.
Car lease purchases are like other types of transactions. when the seller doesn’t know your level of interest, they have an advantage.
5. try some talking points
Companies often have a no-negotiation rule when it comes to the purchase price of a lease, leaving little opportunity to haggle for a better deal.
“There isn’t much to negotiate, if any, because all the terms are agreed upon in advance in the lease,” says benjamin preston, auto reporter for consumer reports.
Still, it’s worth bringing up the subject. after all, you’ll never know what kind of deal you might get if you don’t ask. There’s nothing wrong with asking the seller to think about making some concessions, including:
- purchase option fee waiver.
- purchase incentives.
- financing discounts.
experts point to the call option fee as a sticking point that many sellers are willing to eliminate.
When is it a good idea to buy a rental car?
Buying out the lease is a good idea if you’re ready to drive a vehicle long-term instead of moving forward with a new lease. To determine if the lease buyout is right, you need to ask yourself an important question: Is the vehicle worth buying?
Understanding the car’s residual value is the first step to figuring this out. If your vehicle now has a higher value, it makes sense to buy it. On the other hand, if the value of the vehicle has dropped during your lease, avoid buying out unless you can negotiate a lower number.
Another reason some drivers may purchase their leased vehicle is to avoid additional charges accrued during the lease. if you exceed the allotted mileage or have rips in the upholstery or dents, fines could mean a buyout could save you money if you can trade in and sell the car for a profit.
Always calculate the difference between what you’ll pay and the same make and model cars in similar condition for sale in your area before agreeing to buy out.
the end result
Now that you know the basics of how to buy your lease and save money, take some time to reaffirm your commitment. get ready to:
- do your homework on prices and values.
- shop around for a loan.
- negotiate price and terms, if possible.
If you have lingering doubts, you may want to put off buying your lease for a while longer.