Monday, 24 June 2019

4 Situations When You Should Consider a Car Lease Buyout

4 Situations When You Should Consider a Car Lease Buyout
10 Sep
6:09

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If you’re nearing the end of your lease, you’re probably thinking about what to do with your car now that it’s not quite so new and shiny, and how much you’ll have to pay if you decide to keep it. One option is to buy the car. But is that to your best advantage?

We’ll break down what a lease buyout is, four situations in which it is — and isn’t — to your advantage, and how the process works.

What is a lease buyout?

A lease buyout is when you decide to purchase the vehicle you have been leasing instead of turning it in. There are two main ways to do this:

  1. Finance the remaining value of the car.
  2. Pay cash for the remaining value.

The good news is, you don’t have to haggle over the amount — every lease contract contains the set price at which you can buy the car at lease-end, if you want.

Because you’re “buying out” the manufacturer for the right to the car, it’s called a lease buyout. In most leases, the person who does the leasing has first dibs on whether they want the car. The leasee decides to buy the car or turn it in and the manufacturer accepts the choice accordingly.

Taxes and fees. Note that if you do buy the car, you may have to pay sales tax and state fees, just as you would if you bought any car. Yes, you already paid taxes on it when you first leased the vehicle, but you did not own it then, and the owner on the title and registration was the leasing company, not you. In a lease buyout, the title and registration will change, meaning you might have to pay such expenses (again), depending on your state. However, you could wind up paying the same fees if you get a new lease or purchase a different car altogether.

When to consider a car lease buyout

Here are some factors that may make buying your leased car worthwhile. These factors range from cold, hard cash considerations to “warm and fuzzy” feelings you may have developed for your vehicle.

If it’s worth more than the buyout price

When you first sign the lease, you agree in the contract what the vehicle will be worth when your lease is up. This is also known as the agreed-upon price at lease-end. It is the guaranteed price you can buy the car for if you want. It is also an estimate of the car’s value in the future. When it actually comes close to lease-end, look up the value of the car. Common sites to research car value include Kelley Blue Book, the National Automobile Dealers Association’s Black Book and Edmunds. If it’s worth a lot more than what you can buy it for, then you would be getting a great deal — paying less than what the car is actually worth.

If you incurred high fees

If you go over your mileage limit, you could find out how quickly a few cents per mile adds up. The same can be said of wear-and-tear charges. If the manufacturer is going to charge you for excess mileage and wear-and-tear damage to the tune of a few thousand dollars, you may be better off buying the car in order to skip the fees.

If you found a third party to do the buyout

One way to skip all types of fees and not buy the car yourself is to do a third-party buyout. You could advertise the car for sale or find a friend who wants to buy it and then that person does the lease buyout through you. Some manufacturers will facilitate a third-party buyout. And, depending on your state, you may be able to buy out your lease, turn around and sell it within a few days and not have to pay the taxes. If you decide to do this, be sure to check with your state’s Department of Motor Vehicles, your leasing company and a dealer or manufacturer to be clear about the laws and processes you have to follow.

If you fell in love the car

So far we covered financial reasons to do a car lease buyout, but there may be emotional reasons as well. It’s not uncommon for drivers to become attached to their vehicles. You’re probably in your car at least twice a day, every day. You may have memories tied to the car, and your life quite literally depends on it functioning well. If you need a car anyway, why not buy the car you love?

When to avoid a car lease buyout

You do not have to buy out your leased vehicle. A huge part of why people like to lease is the fact you have the choice to turn it in and walk away if you want to. Here are three reasons you might want to say goodbye to your leased vehicle.

If the car doesn’t match your needs

Maybe you moved to Chicago and need a car that can better handle both the snow and the tight city parking. Or, you started a company and need extra room to transport clients and business supplies. You don’t have to do an auto lease buyout. Get a different vehicle that fits your needs and can handle what’s going on in your life, not only now but for the foreseeable next few years.

If it isn’t affordable

Buying your leased car may not be affordable. Leasing is appealing in the first place because it offers relatively low payments and APRs when compared with purchasing a car. If the vehicle is still worth a lot on paper, the purchase payments for a buyout could be higher than the lease payments. Don’t forget that taxes and state fees could add on the price of the buyout. You are technically buying a car, it could be subject to sales tax and other fees, depending on your location. It may be cheaper on a monthly payment basis to lease another vehicle. And it could be smarter overall to turn in the car and get an older used car.

If it’s worth less than what your contract says

The car’s buyout value is set at the beginning of the lease and usually can’t be changed. However, this value was a prediction. It may turn out that the car model you have develops expensive problems down the road and is worth much less than what was predicted. If the car value has declined to the point it being significantly less than the set buyout value, you would be overpaying to buy out the car.

If it had major damage

Another way the car could be worth less is if it was damaged while you leased it. If it got hit in a car accident or a storm, it will be considered less valuable because it was damaged, even if that damage was repaired. The negative impact on its value (and thus its price) only affects the owner — in a lease, you’re not the owner, ergo, don’t buy it and become the owner.

How the lease buyout process works

If you know you want to do a lease buyout, call your leasing company two to three months prior to the lease ending. They might call you around the same time period to discuss all of your lease-end options. Tell them you decided to do a car lease buyout and confirm with them the process for ending your lease. They should guide you through it. You’ll have to pay the agreed-upon price at lease-end, which is in your lease contract, plus any taxes or fees that your state may charge. The total amount of what you’ll need to pay is called the payoff.

  • If you pay with cash. You may be able to transfer all the funds necessary to the leasing company and then wait for your title and registration in the mail.
  • If you finance the remaining amount. If you decide to get a loan to finance the car, you should get loan offers one month before the lease officially ends. Be careful with the timing; most loan offers are only good for a month. After the expiration date, you’ll have to apply again.
  • How to look for a lease buyout loan. A lease buyout is technically a different loan than a regular auto loan. So, make sure you apply for the right type of loan from the lender. You might be able to finance with the same company you’re leasing from. But don’t apply to just one place — apply to several so you can choose the best one with the lowest APR (you won’t hurt your credit applying to multiple places instead of one within a two-week period any more than you would if you applied to one).

Once you have your loan or your cash, talk to the lessor and follow the process to complete the buyout. You may have to go to the DMV, the dealership or your lender to sign paperwork to finalize everything. Then you can officially claim the car as yours.

LendingTree is our parent company. LendingTree is unique in that they allow you to compare multiple, auto loan offers within minutes. Everything is done online. LendingTree is not a lender, but their service connects you with up to five offers from auto loan lenders.

Advertiser Disclosure: The card offers that appear on this site are from companies from which MagnifyMoney receives compensation. This compensation may impact how and where products appear on this site (including, for example, the order in which they appear). MagnifyMoney does not include all card companies or all card offers available in the marketplace.

Jenn Jones

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