So, your car lease is about to end. What next? Now, you have to make a decision: whether to give back the car or buy it. The best option depends on factors like money, the car’s cost, and what you like. If you’re thinking about buying a car, it’s important to do proper research and calculate everything. You should also know how the process works and its financial impact so that you can make a smart choice. Here are some important things to understand about lease buyouts:
Understanding Lease Buyouts
If your lease agreement includes a buyout option, you can buy your leased vehicle at the end of the lease term. If you don’t want to do that, you can also return the car to the dealership.
During a lease buyout, the purchase price is based on the car’s residual value, which is the predetermined amount set at the lease signing. This value represents the projected value of the vehicle at the end of the lease. It may also be referred to as the buyout amount or purchase option price.
When your lease term concludes, you can decide whether to exercise the buyout option or return the car. If you choose the buyout option, you will be required to pay the predetermined amount along with any additional fees.
Payment Options for Lease Buyouts
Lease buyouts can be expensive since the vehicle is typically just a few years old and its residual value is relatively high. While you can pay the buyout amount in cash, there are financing options available if needed.
To finance a lease buyout, you can apply for a lease buyout loan. Some lenders who offer auto loans for new or used cars also provide specific loans for lease buyouts. Additionally, the dealership may assist with financing arrangements. To find the best deal for your situation, it’s essential to shop around and compare rates and terms.
Points to Consider Before Buying Out Your Lease
Before proceeding with a lease buyout, it’s crucial to consider various factors to determine the financial viability of the decision:
- Value of the Car in its Current Condition: Assess the car’s mechanical history and present condition to determine its current worth.
- Excess Mileage Fees: Check your lease agreement for any additional mileage fees you may be responsible for.
- Excess Wear-and-Tear Charges: Determine if you will need to pay extra for reconditioning or excessive wear-and-tear costs.
- Financing and Affordability: Evaluate whether you can afford the monthly payments and the buyout sum.
A Favorable Lease Buyout Example
Let’s consider a scenario where your contract specifies a $14,500 lease buyout amount. If you were to return the car to the dealership, you would need to pay $850 in extra wear-and-tear charges. You would also be required to pay $1,250 in excess mileage fees. Despite these additional costs, the car is in excellent condition and is currently valued at $14,500. Moreover, you have a strong attachment to the vehicle, and you can comfortably manage the buyout with simple financing.
In this situation, opting for a lease buyout can be financially advantageous. By doing so, you would save $2,100 compared to the expenses associated with returning the car.
An Example of a Disadvantageous Lease Buyout
Now, let’s examine a different scenario where the lease buyout price remains at $14,500 but the vehicle model is different. Assuming you adhered to the lease terms without incurring excess mileage charges or excessive wear and tear, the car is in excellent condition. However, its appraised value in its current state is only $10,000.
In this case, even if you have a strong attachment to the car, opting for a lease buyout may not be ideal. It is likely that you could purchase a similar vehicle in similar condition elsewhere for $10,000. By choosing the lease buyout, you would essentially be paying a $4,500 premium to retain the same vehicle.
Conclusion
The viability of a lease buyout depends on your individual circumstances. Running the numbers using an auto loan calculator and comparing the lease buyout price to the cost of purchasing a similar used car elsewhere can help you make an informed decision. Remember to consider the value of the car in its current condition, potential excess mileage fees, excess wear-and-tear charges, and your ability to finance and afford the buyout. Carefully evaluate these factors to see whether a lease buyout is the right choice for you or if returning the car and leasing a new one is a better option.