Shop Around For Financing
The leasing company will likely want you to finance the purchase through it to squeeze out some extra profit with a markup. Dont say yes until youve explored other financing options. You may be able to get a better interest rate at your own financial institution than with the leasing company or dealership, says Nathan McAlpine, founder and CEO of auto broker CarMate, and there are no fees or penalties if you decide not to go with the leasing company.
In addition to lending money for new and pre-owned cars, some lenders offer car lease buyout loans that work like refinancing loans.
As with any auto loan, the key to getting a good deal is shopping around. Check out lease buyout loans from banks, and online lenders. This way, the leasing company will have to beat the best deal you found on your own. This is particularly true if you have a solid credit score, Pour says. Finance companies will be glad to have you and theyll even compete on rates.
Determining Residual Value Should I Buy Out My Lease
The end of your car lease can come before you know it, so its best to determine whether to buy out the car or return it to the dealer in the months before the lease period ends. Although you may love the car youre leasing, its not always easy to decide whether to buy it once the lease is up. Depending on the vehicles condition, mileage and your contract with the dealership, choosing a lease buyout may or may not be a good investment.
Knowing your lease residual will help you decide whether a lease buyout is right for you.
What Is Residual Value Of A Car
Leasing a car is kind of like renting a vehicle for a set amount of time. The difference with a lease is that the lions share of your monthly payment is for the cost of vehicle depreciation.
Your cars value at the end of the lease is whats referred to as its residual value. Its essentially the value of the vehicle after depreciation.
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Can I Buy My Lease Car
Your lease agreement is nearing an end, so its time to start thinking about saying goodbye. What if youre not ready to part with the car your have now?
Your car is your pride and joy. We all enjoy those day trips to the seaside and lovingly washing, cleaning, shining and polishing it to keep it in a showroom-like condition. But your lease agreement is nearing an end, so its time to start thinking about saying goodbye. What if youre not ready to part with the car you have now?
The only option at the end of the Contract Hire Agreement stated in the terms and conditions is to simply hand the car back and walk away. However, theres nothing stopping you asking the question if you really want to buy your lease car. All you need to do is contact your finance company and ask them for a price they would accept for the car. Remember that it costs the finance company money to send a driver to collect the car and take it to the auction house, so youre really offering to do them a favour.
There are a few things to remember:
If all else fails, you can always take up a new lease agreement with a new car as a last resort.
Hopefully, this guide will have answered any questions you have about purchasing your car at the end of your lease agreement. If not, please feel free to call us on . If you would like to view our latest Audi and Volkswagen contract hire offers please .
New And Used Car Prices Are Higher
Carmakers are struggling to keep up with new car demand. The current microchip shortage is a fresh wrinkle in the auto industrys attempt to keep pace with demand. Because of the short supply of new cars, there arent as many used cars making it to dealers lots. Consequently, the supply of used cars is thin, as well. According to Cox Automotive data, there are roughly 2.3 million used cars available in the United States today. This is a 530,000 drop from a year ago. Supply is tightening. Bottom line: You will pay more right now for new or used cars.
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You Want To Avoid The Hassle Of Car Shopping
Although the internet has somewhat streamlined the process, shopping for a new ride can be exhausting. Unless you love the thrill of the hunt, you may want to just take the course of least resistance and buy the leased car. This is particularly true if you like the car. End-of-lease dealmaking with a lender is generally quicker and easier than starting from scratch with a new car.
If You Kept It In Great Condition
Changing cars can be exciting, but with used vehicles, it can also be risky. You dont know how hard the previous owner drove it, whether its been well-maintained or if it has any annoying quirks thatll drive you crazy.
An advantage to buying your leased car is that, if you treated her well, you dont have to worry about any frustrating surprises.
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Will A Buyout Fit Your Budget
If you buy out your lease and don’t make a new down payment, your monthly payments will likely be more expensive than your lease payment. Let’s take a Honda Accord as an example:
When the buyer started this lease a few years ago, she made a down payment of $1,999 for a Honda Accord. Her monthly payment was $199 plus tax, for 36 months. This deal had a residual of $13,512.
She decides to buy the vehicle at the end of the lease term and takes out a 60-month loan to pay the remaining $13,512. The new monthly payment has crept up to $262, based on an interest rate of 6%. If she opted to extend the loan to 72 months with the same interest rate, her payment would drop to $224. This calculation doesn’t factor in taxes and fees, which would boost the monthly payment further.
As you can see, it’s a good idea to pencil out these things before you make a final decision to buy. Use our Auto Loan Calculator to get a ballpark idea of your potential new car payment based on your residual.
If you’re not sure what interest rate to use in the calculations, don’t worry. You don’t need to be exact at this point. You’re just looking to get a rough idea. Estimate what you think you’d qualify for based on your credit. Keep in mind that interest rates for used-car loans tend to run slightly higher than those for a new car.
How To Pay For Your Lease Buyout
Once you’ve decided to buy your leased car, the next step is financing the lease buyout. Leasing companies and dealerships may offer to arrange financing, but you’ll boost your bargaining power by getting preapproved for a car loan from a bank or credit union before you approach the leasing company.
To get the best financing offers, check your and several months before your lease ends. If your score is lower than you expected, improving your score before you shop for a loan can help you get a better interest rate.
Once your credit score is shipshape, you can start going over your financing options and submitting loan applications. It’s wise to submit multiple preapproval applications to a variety of lenders to shop around for the best interest rate. Credit scoring systems generally treat multiple loan applications in a short period as one application, so submit all your applications within a two-week period and they’ll be combined into one hard inquiry as far as your credit scores are concerned. Alternatively, getting prequalified for a loan will give you a ballpark idea of your financing costs without any impact to your credit.
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You’re Way Over Or Under The Allowed Mileage
Most lease contracts are for three years and 36,000 miles. If you’re over, you’ll owe money if you’re under, you could leave money on the table.
Why pay two or three grand in mileage penalties and have nothing to show for it? says Matt Jones, a senior consumer advice editor at Edmunds.com. Not only that, but buying the car will save you the disposition fee, the charge to prepare the car for resale, which is usually $350-$500.
But also check your contract for purchase option fees , charged by some leasing companies, and factor that into your decision.
Conversely, returning a car you drove only 10,000 miles, when you paid for 36,000 miles is like handing the dealer a big check. Instead, buy the car and use the value youve paid for, Jones says. Or you can get a no-haggle appraisal at CarMax . If the numbers break in your favor and the under-mileage car is worth more than the buyout price, you could buy your car to sell for a profit.
How Can I Tell If Buying My Leased Car Is A Good Idea
Check your lease document. The buyout price or the formula for calculating it is typically included in the terms. Then search online, using Kelly Blue Book, TrueCar and Edmunds or sellers like Carvana and CarMax, to see current asking prices for comparable used cars. If the buyout price is lower than the market price, it may make sense, Mr. Brauer said.
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Ways To Turn Equity Into Cash
If you have equity in your leased car, here’s how to turn it into cash. Keep in mind, though, that these strategies may not apply to everyone:
1. Sell your leased car and get a check. The fastest way to sell your leased car is to get an Edmunds instant offer, which is good for seven days and is redeemable at participating car dealerships. Just enter a few details about your vehicle and soon you’ll have a price for your vehicle that can be paid out that same day.
You can also take your car to any other dealer, not just the one where you arranged the lease, and let the dealer buy the car at the trade-in price. The dealer will pay the leasing company what you owe and give you a check for the equity. However, don’t expect the money immediately in this scenario. The dealership will mail you a check once it gets a clear title, assuring that your car doesn’t have any outstanding parking tickets. Ask to get the trade-in agreement in writing and state the amount due to you, just in case.
2. Sell your leased car to a neighbor, friend or family member. This method requires a bit of trust, so it helps to sell your car to someone you know. But you can sell to any buyer you find, and it will get you the private-party price for the car, which is higher than the trade-in price that dealers pay.
Experts say you might get more money if you are going “brand to brand,” meaning selling a Toyota to a Toyota dealership, although any dealership can handle the transaction.
To Buy Or Not To Buy Your Leased Car
You may be crazy about your leased vehicle, but the decision to buy it when the lease ends should be based on more than just emotion. Carefully assess your budget, the car’s condition and cost, and your financing options before you make the leasing company an offer. Whether you lease or buy your next car, maintaining a good credit score will make it easier to get favorable financing terms.
Cons Of Buying A Leased Car
- If the buyout amount is higher than the market value, you may be overpaying for the car.
- Financing a lease buyout may come with higher interest rates.
- Excessive wear, tear, and mileage may reduce the value of the vehicle.
- You may end up paying more for the car than you would have if you bought it originally.
Ready To Turn In Your Lease Record Used Car Prices Could Mean A Financial Bonanza
For savvy motorists who’ve been leasing vehicles they’re now ready to turn in, record-high used car prices could mean a financial bonanza.
After tumbling to recession-era levels during the early months of the pandemic, the auto market roared back with a vengeance early this year. Dealers are struggling to find product to sell, fueling surging prices all around. With few new cars on showroom lots, motorists have been snapping up whatever used cars they can find.
Josh Frankel, a New York-based financial consultant, found that his leased 2018 Jeep Compass was worth $18,000 on the used car market nearly $3,000 more than the buyout value in his lease contract. So rather than turn the SUV back in, Frankel struck a deal to sell it to a used car wholesaler.
“It couldn’t have been easier,” he said by phone. “I didn’t have to lay out a penny. He came to my house, I handed him the keys and got a check.”
“Lease buyout prices were set three years ago, when dealerships never thought used car prices would be this high.”
When they calculate lease prices, finance companies estimates the residual value of the vehicles at the end of the leases essentially guessing what they will be worth. The figures help calculate monthly payments. But they’re also used to set buyout prices customers can pay at the end of the leases to keep the vehicles.
“Lease buyout prices were set three years ago, when they never thought used car prices would be this high,” Krebs said.
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Can I Buy My Leased Car
Have you fallen in love with your lease vehicle? You might be wondering whether at the end your leasing agreement you could hold on to it for a bit longer.
Its easy to fall in love with your lease car and not want to hand the keys back when your agreement finishes. Buying your car at the end your lease will not be an option written into the contract but can sometimes be possible depending on the circumstances and funder involved.
Where To Sell My Leased Car Near Me
Trying to figure out where to sell a leased car? We make it easy to sell a vehicle lease online at Lease End. We’re looking to purchase leases nationwide, so no matter where you live, we can buy your leased sedan, SUV or pickup and have your vehicle picked up quickly. If you know you would like to lease or finance another vehicle after your current lease expires, selling your car to us is a great way to avoid the lease-return hassle and save money!
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You Leased That Car Because You Liked It
Finally, consider if youre ready to part with the car. At the end of the day, you work hard for a paycheck that affords you nice things. If a car to you is just a way to get from point A to point B and you couldnt care less what make and model youre sitting in, sure, end the lease.
Timothy Moore covers bank accounts for The Penny Hoarder from his home base in Cincinnati.
An Auto Shortage Means Higher Prices For Used Cars
The fallout from COVID-19 continues to cause supply chain shortages in multiple industries. With steel and computer chip shortages, the automotive industry has not been immune.
That means fewer new cars rolling off assembly lines and thus a larger demand for used cars. The problem? Dealerships cannot keep up with this demand.
Megan Stewart of Cincinnati recently purchased a new Toyota RAV4, but the dealer was so desperate for used cars, there was an unusual stipulation to the deal.
When I went to buy a new RAV4, the dealership would only make a deal if I agreed to trade in my 2015 Honda Civic, Stewart says. They said they couldnt handle the loss of a single vehicle on their lot, given the major shortages going on.
And thats no isolated incident. In January 2019, there were just under 3 million used cars available in the U.S. And earlier this fall? It was down to 2.3 million for a loss of nearly 33 percent.
To put it bluntly, dealers are hurting for inventory, says Kyle Johnson, senior editor for The News Wheel.
To make up for the massive deficit of used cars, dealerships have resorted to emailing lessees with whom they are currently under contract, offering to end the lease early and pay a pretty sum for a buyout. San Franciscos ABC 7 told a story of a woman offered $6,000 to end her lease early.
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Trading In Your Lease Vs Selling Your Lease
When you trade in your car, you probably wont get as high of a return as you would if you bought out the lease and sold it to a private buyer. After all, dealerships are trying to purchase inventory at a discount to sell for profit.
However, trading in a car does come with several advantages. Trade-ins can often come with incentives on your next purchase or lease, which might make up for the extra money you could have gotten on your own in the marketplace. It is also one of the fastest ways to get your car into someone elses hands and get that money in your wallet.
When selling on your own, youll have to list the car yourself, hoping that it gets seen by someone who wants to buy it. Once you find a seller, you have to wait for that person to get their money together on their own if they can afford to buy your car in cash or wait for them to secure financing. While this could potentially be a quick process, there is a lot of uncertainty. If you are at the end of the lease and having to decide whether to buy the car or just return it, the peace of mind of getting an offer and being able to trade your car in on the same day can be a great relief.
PROS AND CONS OF BUYING A RENTAL CAR
Thinking of buying a used car? A used rental car may be a good option for you! But before you do, be sure to check out the pros and cons of buying a rental car.