Lease Buyout

A lease buyout could be one of the best ways for you to get out of a car dealership lease and affordably purchase the vehicle before the contract ends. How does a car lease buyout work? A lease buyout allows consumers to purchase the vehicle prior to or at the conclusion of the end of the lease contract term . You may be able to pay cash and purchase the car outright, or you can get an auto loan to finance the purchase instead. If you’ve leased a vehicle and you know you want to keep it or you are over the miles on it, buying out the lease could work in your favor, but there are a few things to consider before you do this.

What is a Lease Buyout?

A lease buyout is the process of purchasing a vehicle that is leased before or at the lease term end. You can use the same method to purchase any type of leased property. At the end of a lease, you typically have several options. The first is to purchase the car from the dealership with cash or a loan through a buyout. The second is to turn the car back in to the dealership.

When you are approaching the end of your lease, you can determine if it makes sense for you financially to take a lease buyout option. If not, you may have to pay any additional fees associated with going over the mileage or other costs.

How does a lease buyout work? There are two considerations. 

An early lease buyout is when you make the decision to buy out the lease before the contract expires. This may be done, for example, if you want to upgrade your car to a new one but have not completed the previous lease yet. In this auto lease buyout method, you pay off the remainder of the monthly payments left on the lease. There may also be an early termination fee to pay.

There are several situations where you may wish to do this, such as:

  • You know the lease is going to have fees at the end because you’ve exceeded the mileage set out in the lease.
  • You’re worried that there is damage to the vehicle that may mean you’ll end up with penalties at the end of the term.

How do lease buyouts work at the end of the lease, then? In an end-of-lease buyout, you simply want to purchase the vehicle at the end of the lease term, typically with an auto loan. In this method, you pay the difference between what you have already paid for the car and its estimated value at the end of the lease. Some key factors that may have you choosing this method include:

  • You want to keep your car, and it’s a good price point.
  • Your credit score qualifies you for a good interest rate.

Why Would Someone Consider a Lease Buyout?

Buying a leased car may not be the obvious option for everyone. Every situation is very different, and it is a good idea to consider the terms and conditions as they apply to your situation. However, there are several reasons why you may wish to consider a lease buyout.

For example, most leases specify that at the end of the lease, your mileage is going to be under an agreed upon number, and if it is above you have to pay fees on that added mileage. That could make it much more expensive to renew the lease or turn the car back in to the dealership.

Factors to Consider Before Buying Out Your Lease

Other factors that may make you want to consider a buyout include:

  • The vehicle’s condition is not great, and you know you’ll pay fees at the end of the term.
  • The market value of the car is less than expected, meaning your car is worth more now than you expected it to be worth.
  • The lease terms mean that you will need to pay a fee for any other reason.

It is important to consider any factors related to your lease carefully before you make the decision to use a lease buyout. Ultimately, it’s important to keep costs in line with your goals but also consider how well the car fits your needs.

The Process of a Lease Buyout

The lease buyout process does not have to be too challenging, especially when you have a lender ready to work with you. From reviewing your lease agreement, to negotiating your lease buyout and driving the vehicle you now own off the lot, here’s what you can expect from this process.

Step 1: Review Your Lease Agreement

Before doing anything else, review your existing auto lease agreement and buy out lease terms within it. Find the buyout terms listed on it and consider any restrictions that may apply. If you are unsure of any component of the agreement, contact your leasing company for clarification.

Step 2: Determine the Buyout Price

Once you know you can proceed with a lease buyout, the next step is to calculate the buyout price. The best way to do this is to contact the leasing company and ask them. There are situations where you can negotiate this lease buyout price down with the leasing company, such as if you know the value of the vehicle may not be worth the market value.

Step 3: Assess the Vehicle’s Value

The current market value for the car is not necessarily what you owe on the lease. You can use the a professional appraiser to find out the current value of the market. Then, compare this figure to the buyout price.

Step 4: Notify the Leasing Company of Your Intent

Let the leasing company know that you plan to proceed with the lease buyout if that’s the decision you have made. You will need to contact them over the phone, through your online account, or in person. You may need to present your identification to prove you own the car.

Step 5: Explore Your Financing Options

Don’t make the mistake of assuming you have to choose a lease buyout loan the leasing company offers. Instead, consider all of your options for purchasing this car. That includes using your savings, credit union loans, or bank financing. Look at interest rates, terms, and overall conditions to make your decision.

Step 6: Complete the Lease Buyout Process

Finally, with your loan in hand, you can then sign all the paperwork with the leasing company to complete the process of buying out lease terms. Your lender will help to facilitate this process as the title changes ownership. Be sure you keep a copy of all paperwork during this process.

Advantages of Lease Buyouts

Why consider a lease buyout?

  • You want to maintain ownership of the car. You can then do with it what you like.
  • Avoid end-of-lease fees. Most people find that they’ve driven over the allowed miles or have other very expensive fees to pay if they try to turn the car back in.

Disadvantages of Lease Buyouts

Why may this be a bad idea?

  • There are costs to purchasing a car like this, including paying interest on the loan.
  • Buying out the car makes you responsible for all updates and repairs for it, meaning it may depreciate in value significantly.

Tips for Negotiating a Lease Buyout

Buying out a car lease is a financial strategy, which means it’s a good idea to negotiate the terms of it. To do that, you’ll need to do some market research and be knowledgeable about the leased vehicle’s condition and mileage. Consider a few strategies.

1. Timing your Negotiations

Time your lease buyout negotiations properly. If you negotiate closer to the end of the lease, you have more leverage over the lender, who does not want to have to deal with the vehicle coming back in-house. Also, think about any special promotions and incentives that may be available from the leasing company at this time.

2. Gathering Market Research

Do market research before you start your negotiations. This means comparing your vehicle to others on the market for sale, considering the current market condition based on the actual condition of the car, and learning what other buyers have done in your situation. The goal is to determine what a fair buyout price is.

3. Considering Mileage Limitations

Mileage is always an important factor in negotiations for a lease buyout. You may be able to get a lower buyout price to help offset the costs associated with excess mileage. Always be honest about your mileage. If the mileage is too high, work to find a compromise with the leasing company about the full buyout amount.

4. Negotiating Fees and Terms

Every component of the lease buyout could be something you negotiate with the leasing company over. That includes any fees included in the terms of the lease buyout amount. When possible, request a waiver of any fees or request a more flexible term to suit your needs. Most often, to close the deal, the company will work with you. Be assertive with this process but also respectful since the leasing company does not have to agree with you.

Final Thoughts

Is a lease buyout the right decision for you? Really analyze the cost of turning the car back in, the value you see in the car, and your desired long-term use. Then, if you decide to move forward with a buyout, be sure you’ve negotiated the best terms possible.

Are you ready to learn more about financing your loan options? Contact the team at Island Federal Credit Union to learn how we can help you with personal finance and lease buyouts.