Should You Buy Your Leased Car? Tips for a Successful Purchase
If you've chosen to lease your car, you might wonder what's next at the end of your contract. For some people, buying a previously leased car can offer time- and money-saving benefits that can help them get back on the road quicker. Buying a car is a big decision, though, so make sure to consider all of your options first.
In this guide, we'll describe what happens when you lease a car and how you can buy it after your contract ends. We'll also explore situations where it might be highly beneficial to purchase your leased vehicle and provide tips to help you complete a successful sale.
The car-buying process can be long and complicated, so if you've found a vehicle you love for a great price, you should act quickly toward purchase.
Thinking of buying out your lease? Easily compare rates from lenders below.
What Does It Mean to Lease a Car?
When you lease a vehicle, it essentially means you pay a certain monthly amount to a leasing company to drive a vehicle for a specified amount of time. A type of car financing, this arrangement allows you to use a vehicle for an agreed-upon period and then return it to the dealer. If the option is available in your contract, you can purchase the ride at the end of your lease term.
You might choose to lease a vehicle rather than buying for a variety of reasons. For example, monthly payments on a lease are often smaller than car loan payments from a bank or credit union. It can also be a great option if you're not sure you want to keep the car for a long time.
Before you decide on any lease agreement, read over the terms carefully to make sure they match your goals. Leases often run for 36 months and offer a mileage allowance of 36,000 miles, but this can vary. If you'd like to potentially purchase the vehicle at the end of the lease, make sure you have the option clearly stated in the lease's terms.
If you are a frequent driver, you can negotiate a higher mileage limit and pay a higher monthly payment but this is worth it compared to possibly high charges for exceeding the limit, if you return the vehicle.
What Happens at the End of Your Lease?
At the end of your lease, you'll have a few options, depending on the terms of your agreement and your driving habits during the lease. When you lease a vehicle, you'll get a collection of driving stipulations meant to keep the car in its best condition for as long as possible.
For example, a mileage cap will specify how much you can drive the car during your allotted time. Your leasing company might also make sure the vehicle has no damage or issues with it that exceed normal wear and tear.
If your ride meets all these requirements perfectly, you can choose to hand it back in and walk away. From there, you can purchase or lease a new vehicle. If you've greatly exceeded mileage requirements or caused any damage, you could face fees that might motivate you to purchase the vehicle instead.
For those looking for a lease buyout, you might pay a fee based on the vehicle's residual value, a purchase amount set at signing based on the predicted value of the car at the end of the lease. To pay for the vehicle, you can use similar methods as if you were buying a new car. For example, you might look into auto financing from a credit union to pay for the residual value price plus any additional fees.
Should You Buy Your Leased Car?
In many cases, yes, you should buy your leased car. Here are some examples of situations where purchasing a leased vehicle can be a solid financial investment:
Enjoy the Vehicle
First and foremost, you should consider a lease buyout if you enjoyed driving the vehicle and would like to continue using it in the future. Finding a vehicle you love can be tricky, so you'll have the added benefit of already knowing you're comfortable in your ride.
This can save you the time and stress of searching through seemingly endless options to find something that works for you and your lifestyle. Consider several other factors, though, before making this choice.
Mismatched Mileage Allowance
If you've driven the car way less or more than your specified mileage amount, it might be worth buying. If you've gone well over the limit, you'll have to pay mileage penalties that can add up quickly.
If you're significantly under, you'll lose some of the car's value you've already paid for. Depending on the terms specified in your lease agreement, you might be able to limit some return fees by purchasing.
Remaining manufacturer's warranty coverage
Remaining manufacturers warranty coverage Another item to consider is how long is the manufactures warranty on the vehicle after your lease expires. Many manufacturers offer extended warranties that may go as long as 10 years on major components.
If you've had a good experience with your car, you're under any mileage limits and your car comes with a long warranty, you're likely to face lower repair costs in the future without added costs of purchasing an extended warranty. In this case, you might be comfortable driving an older vehicle and consider a purchase.
Excess Wear and Tear
If you're looking at exceptionally high fees for wear and tear, it might be smart to buy the ride and fix any issues later. This can include scrapes, dings, bumps, or tears in the upholstery.
In many cases, these issues don't affect the car's performance, but they can end up costing you just the same. You might even choose to ignore small cosmetic issues once you own the vehicle rather than spend the money to fix them.
Worth More than the Buyout Price
When you agree to a lease, the leasing company will often set a buyout price if you'd like to purchase the car at the end of your term. Because they can't predict the future, the leasing company will make an educated guess about how much the car will be worth after it has depreciated in value throughout your lease term. Sometimes they get this number wrong.
Your car might increase in value for a variety of reasons the leasing company didn't consider when selecting the buyout price, such as a limited supply of used vehicles and the condition of the vehicle.
This can leave you with a car that's worth more than you'd have to pay for it. If you find yourself in this situation, it can be an easy decision to buy while you still can. You can then either keep the car for less than it would cost to buy a new version or you can sell it to another buyer and keep the difference.
Ready to Sell
When you're coming to the end of a lease, some dealerships offer a lease-pass-through option, which connects a leaseholder with a car shopper who would like to take over the lease.
This involves the dealer essentially buying the car back from you and then selling it right back to someone else. One benefit of this option is it saves you the sales tax fees that can minimize your earnings. Talk with the finance department at your dealership to see if this is an option for you.
High Prices for New and Used Vehicles
Prices for new and used vehicles can swing backward and forward dramatically, although we are currently seeing record high prices for many new rides. If you'd like to avoid the struggle of locating a good deal in this market, it might be a good idea to compare your leased ride's buyout price to its current value and see if you can come out ahead.
Even if the values are comparable, consider how likely it would be for you to find another vehicle you like within your budget in the current market.
Tips for Buying a Leased Vehicle
Ready to buy your leased ride? These tips can help you complete a successful purchase:
Treat Your Sale like Any Other Vehicle Purchase
Treat your lease sale like any other new car purchase. You'll likely take out a loan to finance the buyout price, so explore loan rates and terms to find the best deal.
Also, be aware of any opportunities for your agent to upsell you during the buying process. Don't allow yourself to come into the sale unprepared.
Be Patient
You can choose to buy your vehicle before the lease runs out, which is called an early buyout. This can come with additional fees, though. It might be better to wait until your lease is almost up to purchase, as this can put more pressure on the dealer.
At the end of the lease, the dealer knows they'll have to find a new buyer soon, and they might rather just sell to you. This can motivate them to offer you additional deals or fee-reduction options to sweeten the agreement.
Gather Information
As with any major car purchase, it's important to gather as much information as possible before buying. Read the lease agreement over a few times to make sure you understand the buying process and its requirements. This can help minimize the likelihood that you're surprised and pressured into a hasty decision.
You'll also want to do plenty of research on the car and how its current market value compares to the buyout price. Check multiple sites and databases to get a consensus on your car's value. This knowledge can give you an upper hand as you begin the buying process.
Don't Make the First Move
Buying a leased car is just like any other sale. You don't want to show your hand to the seller too soon, or they might become less motivated to give you a good deal on a ride they already know you want. Rather, wait until the leasing company calls you to talk about the purchase.
Leasing companies might call you around 90 days before the lease is set to expire. Wait until then to discuss your desire to buy the leased car. This purchase, like any, is a negotiation, and you should try to get ahead whenever you can.
So, is it a good idea to purchase your leased car? If you meet a few qualifications, then yes, it's often a good financial choice. Still, it's important to think carefully about your purchase and read over your lease terms multiple times to make sure you understand all requirements.
You can also complete a few simple steps to help you prepare for a successful sale. Buying a car can be tricky, so you want to take any advantages you have. If buying your leased car works for you, go forward knowing you've made a solid financial decision.
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