Should I Buy My Leased Car?Valley Auto Loans » Articles » Car Shopping Advice » Buying Out A Car Lease Previous Next Last Updated On: January 25, 2017
Car Lease Buyout Options Can Be A Good Choice.
- 1 Car Lease Buyout Options Can Be A Good Choice.
A car “lease buyout” in general terms means you plan to purchase the leased car at the end of the lease term from your car leasing company. Most leasing companies provide an option to buy a leased car in the lease contract. At the end of your lease term, you can choose to purchase the car at the buyout amount. The end of the lease buyout purchase price is stated in your lease agreement as the purchase option price and can be paid in full or financed with a new auto loan.
When Is a Car Lease Buyout a Good Choice?
We will look at several important facts you should know when thinking of buying your leased car and how to buyout a leased car without paying more than you need or turning in a leased car with no penalties.
- Buying out a lease to avoid excess mileage fees.
- The difference between lease buyout and early lease termination.
- Finding the correct residual price for my leased vehicle.
- How will an early lease buyout affect my credit score?
- What do the end of lease fees represent?
- Financing for your auto lease buyout.
- Can I make money from reselling my lease buyout car?
Should I Buy My Leased Vehicle?
At the end of your lease term, you have two choices. You can turn the car in and hopefully you have not acquired any penalty fees, or you can buy the leased car from the leasing company as stated in your agreement by cash of financing with an auto loan.
This lease agreement will specify the selling price and additional fee you will have to purchase the car outright, but there are several things to consider before buying out your leased car.
You know the cars quality and condition better than anyone. You have driven it, cared for it and hopefully kept the maintenance up on it so if you love your car and want to own it you have some advantages over buying any other used car. Before you lease to buy your car, you need to know all your options before committing to buying out a lease.
As you proceed with the lease buyout, and you need financing, you will notice some differences with this type of buyout purchase compared to a used car purchase from a car dealer.
Many people find that at the end of their vehicle lease they have exceeded their allotted mileage limit and unless you have a lease to own car you will have penalties. They also may have damages or excessive wear the will lead to additional penalty fees. Some people choose to consider an early buyout to avoid these charges. However, some lease contracts restrict when and if you can buyout your lease early. You will need to check your individual lease agreement to see if you have time restrictions like at the beginning or the last few months of the lease to purchase your leased car.
How Does A Lease Buyout Work?
In many ways, buying out a lease is the same as if you were buying a used car from a dealer but there are some differences. In most cases, you will need to find your own financing company. This can be difficult if your credit score is not as high as most people. There are finance companies that are designed to help people with subprime credit get “lease buyout loans” that will also contribute to rebuilding their credit score.
No matter what your credit score rating is, you should shop around for your auto financing the same way you do when you are trying to find the best car deal.
The rest of the process is the same. You will pay the vehicle’s “residual price” or the cars selling price, and you will be responsible for taxes, and license fees. The car title will go to the new car finance company, and you will get a vehicle registration in your name.
Lease Buyout Purchase Price
The biggest factor to consider in a lease car buyout is, of course, the purchase price. This price is set by the leasing company and is equal to the vehicle’s residual value at the end of the lease. This is the amount specified for the end of the lease purchase and represents the average depreciation of that vehicle for the length of the lease term. Since this price is set by the leasing company, it is up to you to decide if it is a fair price or if you will be paying too much for the car.
In many lease buyout options, the residual value of the vehicle that was leased will not be equal to the correct resale value. To see if the purchase option buyout price is fair you will need to know the true market value of your car. If you find that your leased car has a resale value that is lower that the residual value by a significant amount than you should not purchase it at the lease purchase option price.
You can try to negotiate the end of lease purchase price with the leasing agency, explaining the drop in resale value will put you owing more than the car is worth with your new car loan. Remind them that if you turn in the car, they will have to sell the car at wholesale value and will probably end up taking it to a dealer auto auction to get a fair price for it. Many times they will adjust the selling price to avoid the cost and trouble to sell it someplace else.
Keep in mind that some leasing companies carry “residual insurance policies” that cover the price difference between resale value and the residual price. This helps leasing companies recoup money lost when they have to sell a car below its value so negotiating the selling price by the residual value does not always work.
You may have to settle for finding a similar used car model for a much lower buyout amount. However, if the residual price is about the same or less than the resale value that you have a good deal and you can consider the lease buyout option without worrying about getting upside down on the financing for the leased vehicle.
Remember that if you decide against buying your leased car, you may still have those penalty fees to deal with. Buying the lease car from the leasing agency gives you negotiating leverage on any fees you have acquired during the lease term. Car lease buyout can be a good choice if the money you save from the fees will exceed the cost you pay for buying out a lease.
Finding Leased Car Market Value
A good Place to start to find your leased car’s resale or market value is with your computer. Kelley Blue book, Edmunds and the NADA guidebook are good websites to start with.
Also, check used car dealers in your area to see what the same make and model is selling for. Use the same pricing tools that you would if you were buying a used car and you needed to find the correct selling value. A car payment calculator can take the guesswork out of your monthly payments.
Aside from the selling value of the leased car, several factors would make sense for you to know about before purchasing your leased vehicle at the end of the lease term.
Lease penalty fees can have a costly effect on closing a car lease and can make a lease buyout look very acceptable.
Car Leasing Fees and Early buyout Fees
Early Buyout For A Car Lease
An early buyout is what it sounds like. If you choose to purchase your leased car before the end of the leasing term it is called “early lease buyout” and it will be more complicated to determine the correct buying price. In simple terms, it is what you still owe on the lease added to the residual value listed on your lease agreement for the lease end buyout.
Many people make a rash decision to buy out their car lease early because they went over on their mileage allotment. They decide to buy out early to avoid the mileage penalty fees. However waiting until the end of the lease to buyout the lease car will do the same thing, and you will still prevent the mileage penalty. The only catch is that you do have to buy the vehicle at the end of the lease, or you will be charged the penalty fee.
Those who choose early buyout sometimes find that they still owe more than they thought they did. This is due to the low payments that you wanted for your lease. The vehicle has depreciated faster than your payments have paid the lease.
Another factor for this is that the leasing agency will recalculate the payoff balance with a different formula the will show the payments you have made at that point going to pay the interest charges on the lease first.
Early Lease Buyout and Early Lease Termination Are Different
If you find that you need to end your lease early, and do not want to or can’t buyout your lease, then you will have to work through an “early lease termination Payoff.” This is different from an early buyout because it will be costly and can damage your credit rating.
Vehicle Purchase Fee
Many lease companies will charge you a purchase option fee for choosing to buy your lease vehicle. They do this because many times the resale value of the car is greater than the residual value price.
This price should be considered when you are calculating your cost vs. choosing to purchase a different used car instead. If you do accept the buyout price, the fee can be rolled into the selling cost and added to the financing. In any case, we recommend that you read your lease agreement and have an understanding of all charges and fees associated with a purchase option.
Another fee that you may see on your agreement is a Disposition fee. Lease dealers charge this fee to compensate them for the costs involved in reselling the leased vehicle that you turn in. This fee should defiantly be negotiated if you plan to purchase the car.
Mileage Limit Fee
The excess mileage fee can be the most costly of the fees. Your lease agreement was designed to compensate for the vehicle’s depreciation. Depreciation is significantly affected by the mileage on the car and will lower its resale value.
The leasing company has averaged in the approximately estimated miles that the car can travel during the lease period that will not harm its resale value. This figure is part of your lease agreement. The penalty for going over the allotted miles is usually $0.10 to $.30 for every mile you are over. This is why this penalty fee can be the highest fee and why may people consider a buyout to avoid this penalty.
Excessive Wear fee
If your car is damaged or is showing signs of abuse or unusual wear and tear, you will probably be charged a penalty fee. This fee is estimated the same way a damaged car is evaluated at an auto body shop. If your lease car is damaged, you may want to think about getting it repaired before turning it in. In most situations, you can negotiate a better deal with an auto body shop than you can with a leasing company. If you choose to buy the car, you will not have to worry about its condition.
Early Lease Termination Fee
This fee is charged for failing to complete your lease agreement and can carry some stiff penalties including damaging your credit rating. The amount varies from case to case and leasing company to company depending on the amount you have paid and the time that you have completed. You will need to read over you lease agreement to see how this will affect your lease situation.
Financing Your Lease Car Purchase
When buying a leased car, you have two basic choices. Write them a check for the cost of the purchase or get a car loan to pay off the leasing company.
You can find someone to buy out your lease or sell the vehicle after you buy it but the fact remains that you have to purchase it first.
Like any loan, you should shop around for the best deal. Don’t just look at the cost of the buyout or what your payments will be each month. Car loans are structured differently, and low monthly payments are not always the best car loan.
We recommend using a reputable auto loan broker like Valley Auto Loans to find a lender that is right for your financial situation. You fill out an application online, and they send it to their list of lenders who select your loan based on your ability to pay and not just your credit score. Good or bad credit customers have gotten great loan deals from Valley Auto Loans. They offer helpful tips on purchasing a new car or trading in a car.
They have many solutions for purchasing a used car and negotiating a fair price or dealing with bankruptcy and many other financial topics that will affect you lease car buyout.
How to Stay Ahead On an End of Lease Purchase
We have already discussed the residual value of the end of the lease car so let’s look at an example of a bad lease buyout deal and a good lease buyout deal.
Let’s say you have leased a car and are considering the end of the lease purchase option. The car started with a value of $ 30,000, and at the end of the lease term, the residual value was $19,000. The majority of your lease payments were applied to pay for the depreciation of the car, but when you check the correct resale value, you find it is only about $15,000 or $16,000.
It is not uncommon for lease companies to show an exaggerated residual value with a higher buyout price than what the car is worth. In this situation, you will come out better if you turn the car in and try to find a used car of the same model.
Now let’s say that that same car has a lower residual value and the car buyout price is $14,000. You know the car is selling for $15,000 or $16,000 at the dealer lots, so it makes sense to purchase the car from the leasing dealer and save $1,000 or $2,000.
Just keep in mind the buyout fees we mentioned so take all fees into consideration before you make a final decision.
If you see that you can buy the car under the market value, and think you could buy the car then resell it to gain the cash profit, just remember the sales tax. In many states, if you buy then resell a car in less than ten days you will not have to pay sales tax and the buyer is responsible for the tax. If this is an option for you, check with your state’s DMV to see if you qualify for this tax option.
Reselling a Lease Buyout Can Be Complicated
If you plan to resell the lease car you are purchasing you will need to plan ahead.
- Remember the sales tax and try to avoid paying this fee or you will lose a significant part of the profit.
- Get started with your lease buyout as early as you can so you can get any transfer documents in your name for the resale.
- Use the internet to find your DMV and search the vehicle. Then print off any information and code documents that you may need.
What if someone else wants to buy my end of lease car from the leasing company for me?
Don’t expect the leasing company to offer them the same buyout price that they offer you. You are the person that holds the lease agreement, and you will need to buy the car from the leaser if you want that price. After that, You can sell them the car but don’t forget the sales tax issues. If they buy the car from the leasing company, they will probably be charged a much higher selling price. If they back out of the sale, you could be stuck in a bad situation.
Buying your leased car at the end of the lease does not have to be a complicated process. Many people try to make money off of the car buyout process and cause more trouble by not understanding their state laws and their rights. Keep the process simple by doing your research beforehand, so you do not run out of time. Valley Auto Loans can help you locate the best auto loan lenders or refinance lenders with the best finance rates for your credit situation. After you apply, you will find the how easy it is to finance your car lease purchase.
Rent to Own Option
They work almost exactly like a typical car lease but are specially organized so that they are more practical for people in the market to rent who have bad credit.
For other useful “How to Tips” and financial information, please visit Valley Auto Loan’s Informative blogs and Resource page. We understand having a tight budget these days and know drivers are looking for ways to save money while maintaining your vehicle. We can show you ways to save money before and after you buy a car.
Here are some of the “how-to” tips that may be helpful to know as a car owner.
We also have new and used car buying guides that everyone should read before car shopping or getting auto loan financing. Valley Auto Loans finds loans for people with good credit or bad credit. You can learn how to negotiate the best car price with experienced car dealers and prevent you from being taken advantage of. We also have many resources including payment calculator tools that will help you estimate your monthly payments and loan term. Valley Auto Loans, the best place to find answers to your car financing questions.
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