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A lease buyout can be a great option in some situations, as it allows you to keep driving the same car you've had for years rather than switching to something new and unfamiliar. Before you decide whether to go through with a lease buyout, run the numbers to ensure it's the best financial move for you.
Lease buyouts often have associated fees, so read your lease carefully to understand what you're paying for when the time comes to buy out your lease. You'll also want to know how much the mileage fees amount to and what the car is worth. When you have all the numbers, you can compare the cost of buying out the lease with either getting a new lease on another car or buying a different vehicle. If you're unsure how a lease buyout works, this detailed guide is here to help.
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How Does a Lease Buyout Work?
Not all lease agreements allow you to buy your vehicle at the end of the lease, but if your lease has a buyout as part of the contract, then you have the right to purchase your car either when or before your lease expires. You can talk to your dealership to find out whether your lease has a buyout option, though you should be able to find out if you have a copy of your contract on hand. A buyout allows you to pay for the vehicle based on the lease contract's agreed-upon amount.
Typically, the lessor estimates how much the car will be worth at the end of the lease, known as the residual value. This is the amount you'll pay for the car if you want to keep it after the lease ends. Your car's residual value is typically a percentage of its manufacturer's suggested retail price and depends on factors such as economic conditions, gas prices, vehicle features, and car reliability.
Some cars depreciate faster than others, which means a lease buyout could cost you more than the vehicle is worth. That's why it's important to calculate the numbers to decide whether it makes sense to buy out your lease.
For example, if your lease buyout amount is $15,000 and your car is only valued at $12,000, a lease buyout isn't going to save you money. But if those numbers were reversed and your car is worth $15,000, but you can buy out your lease and get it for $12,000, that's a deal you may want to take.
Don't forget to factor in any fees you may have to pay when deciding if a buyout is best for you. For example, buying out a lease usually involves paying a purchase option fee, sales taxes, and any registration and administrative costs. According to AAA, insurance, maintenance and repairs, tires, and registration and taxes are other commonly overlooked fees that many neglect to include in their monthly car budgets.
What Is an Early Lease Buyout?
Your lease agreement may allow you to buy out your lease early. This means you can buy your leased vehicle before the lease ends. This may be beneficial for drivers likely to exceed their mileage cap. Going over your mileage limit on a leased car can cost you, as you'll be charged a per-mile fee for every mile you go over your limit. If you really like your car and know you want to keep it, you can opt for an early lease buyout so you can start paying to own it rather than just leasing it.
Leased cars that are involved in an accident or experience major damage are in danger of racking up hefty fees. In such a case, an early lease buyout could save you thousands of dollars in penalties you might be responsible for if you were to see your lease through to the end. An early lease buyout can be more complicated than a lease-end buyout, so it isn't as common.
What Is a Lease-End Buyout?
Most lease buyouts happen when the lease ends, called a lease-end buyout. This type of buyout happens when you've finished the lease agreement. You'll have the option to turn your vehicle over to the dealership, pay any fees that are due, and be on your way. If you take this option, you'll probably need to lease or buy a new vehicle. However, if you like the vehicle you've been leasing or if it's a better deal to buy the car than get another one, you may want to take advantage of a lease-end buyout option.
If you don't exceed your mileage cap and take excellent care of your car, you may not mind paying the vehicle's remaining value to buy out the lease. On the other hand, if you've exceeded your mileage cap and are going to have to pay a couple of thousand dollars in fees, you may want to buy the car if it's a good deal to avoid the excess mileage fees.
Some dealerships may allow you to renew your lease or go onto a month-to-month lease if you're unsure what to do when your lease ends. This can give you time to consider your options and look at the numbers more closely to ensure you make the right choice.
How Do You Buy Out a Lease?
To understand how a lease buyout works, you need to know the steps to take to start the process. Think about whether you want to keep your car when your lease is over before the lease actually ends. If you decide you can't give up your ride, take these steps to buy out your lease:
Talk to your lessor: Start a conversation with whoever you lease your vehicle from. Let them know you're considering a lease buyout so they can pass on the necessary information. If they say a buyout option exists, you might try to negotiate the purchase option fee or ask for other incentives. The lessor will also be able to discuss your options if a buyout isn't part of your lease agreement.
Calculate the numbers: Once you know a lease buyout is an option, you can calculate the numbers to determine whether it makes sense. If buying the car you currently lease makes the most sense, you can proceed.
Get a lease buyout loan: If you need to finance the cost of the buyout, you may qualify for a lease buyout loan. Some lenders may finance your car for you if its value exceeds its purchase price or you're a low-risk borrower. It helps to compare options from multiple lenders and look for a loan with a low interest rate that can save you money.
Take possession of the vehicle: If you pay cash to buy out the lease, you can take possession of the vehicle's title. You're now the owner of the vehicle.
Lease Buyout FAQs
Here are the answers to some frequently asked questions people often have about lease buyouts:
Should I Buy Out My Lease?
A lease buyout can be a good idea for those who:
Really love their vehicle.
Put a lot of miles on their vehicle and may be subject to substantial fees.
Have sustained damage to their vehicle in an accident.
Did not stay on top of handling maintenance and repairs.
Can buy out their lease for less than it would cost to replace the vehicle.
If the opposite is true for any of the above points, you may want to seriously consider whether a lease buyout is the best option.
Who Will Buy Out My Lease?
Talk to your lease provider to find out how to proceed with a lease buyout. The money for the buyout will come from you if you pay in cash or the bank if you get a lease buyout loan. Getting a loan to purchase the remainder of your vehicle's value comes with the benefit of letting the lender handle the buyout details. They'll discuss the buyout terms and transfer the money directly to the dealership.
Can I Negotiate My Lease Buyout?
Often, you can negotiate a lease buyout. However, the price of the buyout was set at the beginning of the lease, so it's not easy to get a lower price. This doesn't mean it's not possible. Negotiating a lease buyout can be similar to purchasing a used vehicle. The dealership will have to sell or lease the vehicle to someone else, so they have to consider how desirable the car is in its current condition. A car that may be difficult to sell could be easier to negotiate on than one that's highly sought-after.
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