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 buy out 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 purchase 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 buy out 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 leased 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 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 charge 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 many 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 leased 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 your lease agreement to see how this will affect your lease situation.
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 vehicle 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.