Learn What Happens to Your Warranty at the End of Your Lease
Leasing a car has many benefits, like getting a more affordable payment on a brand-new car and the option to get a new model at the end of your contract. Most leases also come with a factory warranty, which helps you maintain the vehicle and avoid costly bills at the mechanic.
However, most bumper-to-bumper warranties expire after three years. While you're typically protected during the entire lease period, you don't always get to keep the warranty if you buy out your lease. Learn more about what happens to lease warranties if you decide to purchase the car.
Looking to buy out your lease? Easily compare rates from lenders below.
Do Warranties Cover a Leased Vehicle?
Most leased cars come with a warranty from the manufacturer. Most manufacturers offer at least a three-year or 36,000-mile bumper-to-bumper warranty. It covers all repairs to the vehicle, except for worn parts, such as tires and brake pads. It also doesn't cover routine maintenance, like oil changes.
Some manufacturers offer additional warranties, such as Kia's 10-year/100,000-mile limited powertrain warranty. These warranties cover your car's moving parts, such as the engine, transmission, and suspension.
Powertrain and anti-perforation warranties, for example, may run longer than your bumper-to-bumper coverage — depending on who makes your vehicle.
By the time your lease ends, the vehicle may still be covered by one of the manufacturer's warranties. However, this isn't always the case. It's important to talk to the dealership to find out what warranties are still valid if you're thinking about buying out your leased vehicle.
What Happens to Your Warranty if You Purchase Your Leased Car?
Most lease warranties last for three years, which is also the most common lease period. If your lease ends in three years and your warranty ends in three years, you won't be able to keep the warranty if you purchase the vehicle at the end of the lease period.
However, if you purchase the vehicle before the lease ends, you would most likely be able to keep the warranty until the warranty contract is up.
Is a Lease Buyout Right for You?
If your lease includes a buyout option, you can purchase the car when your agreement expires. The alternative is to return it to the dealership and get a new lease, or potentially purchase another vehicle. If you're considering a lease buyout, here are some questions to ask yourself.
Is the Vehicle Worth It?
The purchase price of your leased car is based on its residual value, which can be found in your lease contract. The leasing company calculates this figure using a predicted value method. If you choose to keep the car and exercise your buyout option, you can expect to pay this fixed amount plus any additional fees.
To determine the car's value at the end of your lease, use a site like Kelley Blue Book to calculate the current market value of your leased car. You may want to consider buying the vehicle if the buyout amount is less than its value. However, if its market value is less than the residual value, you might pay more than the car is worth.
Is It in Good Mechanical Condition?
One perk of leasing a car is that it's under warranty for the entire duration of your agreement. However, since most warranties and lease agreements end simultaneously (typically at the three-year mark), you may want to consider purchasing an extended warranty.
This will be an additional expense for you. You'll also want a certified technician to check the vehicle's systems to ensure everything is mechanically sound before you buy it out.
Have You Exceeded the Mileage Allotment?
Every car lease includes a specific annual mileage limit. If you exceed this limit, you'll end up paying for the overage charges. However, it may be less costly to buy out your vehicle if you turn it in with a high odometer reading.
For example, if you lease a 2023 Honda Pilot and exceed your mileage limit by 5,000, and your per-mile charge is 15 cents, you'll have to pay an extra $750 when you turn in your leased car. In this case, buying out the agreement may be a better financial decision.
What Condition Is the Car In?
If you've done a terrific job taking care of your vehicle inside and out, you might be happy to keep the car. But if there's any damage, the leasing company will charge you a penalty fee. If you choose to buy the vehicle, you won't have to pay the damage fee.
A Good vs. a Bad Lease Buyout
A lease purchase makes more sense in some circumstances than in others. For example, if your buyout price is $15,000 and you owe $2,000 in excess mileage fees and $500 in wear-and-tear charges, you could return the vehicle to the dealership and just pay $2,500.
On the other hand, if the car runs well, you like it, and you can secure financing, you'll save yourself $2,500 in fees if you keep it instead.
If you discover that the same car only has a $10,000 market value, you won't get the best deal if you buy out your lease for $15,000. In this scenario, purchasing the same make and model elsewhere would cost less, even after paying $2,500 in fees to return the original leased vehicle.
This is why it's important to run the numbers on a lease buyout before you decide to take this option.
Why Buy Out a Car Lease?
If you love your car and want to keep driving it after your lease ends, buying the vehicle might be a great option. However, there are several things to consider before signing on the dotted line.
You'll want to review your budget, and the car's price, and decide whether a buyout makes sense in your financial situation. Ask yourself these questions if you really want to keep the car:
Is the price you'll pay less than the car's market value? If you can buy the vehicle for less than its market value, it's worth buying out your lease.
Do you love the car? If you love the car and aren't ready to jump into a new lease or deal with the hassle of getting a new vehicle, keep it. However, you may need to purchase an extended warranty, as you'll likely no longer be protected by the factory warranty.
Did you take good care of the car? If the car is in bad shape at the end of your lease, you could face hefty fees for excess wear and tear, so buying it can help you avoid this charge. The opposite is also true. If you did maintain the vehicle, keeping it is a safer bet than purchasing a car with an unknown history.
Do you enjoy car shopping? Jumping from vehicle to vehicle can be exhausting. Unless you find car shopping enjoyable, closing an end-of-lease deal is usually easier than starting the process over again.
Have car prices risen recently? The car market fluctuates all the time, and new and used cars sell fast. You may get a better deal by keeping your leased car than trying to buy the same vehicle from a dealership.
Do you have a buyer? You can also buy out your lease and sell the car for a profit if there is high market demand in your area.
Does a Lease Buyout Fit Your Budget?
Another important factor to consider when deciding whether to buy out your car lease is your monthly budget. Buying out your lease can be expensive because the car is typically only three years old and probably has a high residual value. Fortunately, you can finance the buyout with a loan or pay in cash.
Most auto lenders offer loans for new and used cars, as well as for lease buyouts. Your dealership may partner with a great bank that can offer to help arrange your financing. However, you can also look for better interest rates and terms from other lenders.
Carefully review any loan offers and pay attention to the monthly loan payment amount. Depending on how the bank structures your loan, the payment may be higher than what you paid for your lease each month. You should make sure you can comfortably afford the new payment if you choose to purchase your lease.
Can You Negotiate the Buyout Price?
Leasing companies often incentivize lessees to purchase their vehicles. For this reason, it may be possible to negotiate a lower buyout price than what is stated in your contract.
However, it's not always easy. The lender calculated your car's residual value at the beginning of your lease, and that amount rarely goes down. If you want to get a better deal, make sure to prepare yourself with a good argument and supporting data before you step foot in the dealership.
The manager may also need to approve any reductions in the buyout price you negotiate.
Keep in mind that your leasing company may not be willing to go too low, either, because they won't make a profit on the sale. With new car inventory levels continuing to recover from the semiconductor chip shortage, the prices of used vehicles are still inflated.
While you may not be able to save much on the previously agreed-upon price, you might still convince the dealer to throw in free extra perks, like an extended warranty.
How to Pay for Your Leased Car
In addition to the cost of a new warranty, you'll also have to pay the residual value, sales tax, and other fees when you buy out a car lease.
All these charges add up. If you don't have the cash to purchase the vehicle outright, you'll need to take out a loan to finance the transaction. Remember that this monthly bill may not be as affordable as your lease payment.
Some dealerships offer lease buyout loans, and while this may be convenient, shopping around for the best rate and term could help you save money. Also, consider getting a preapproval letter from your bank or credit union and bring it to compare with the dealership's offer.
Do You Need an Extended Warranty?
Once your leased car's bumper-to-bumper warranty expires, any repairs become your financial responsibility. The dealership may offer an extended warranty when you buy your leased car.
This policy kicks in after the manufacturer's coverage is up, and unlike that coverage, you'll have to pay for this policy out-of-pocket. The price of extended warranties varies depending on your vehicle's mileage, make, and model, along with the deductible and coverage you choose. This type of warranty may also come with perks, such as a free rental car when yours is in the shop.
But is an extended warranty worth it? Your car isn't getting any newer, and a major system, such as the transmission, could fail one day. If you find yourself in a situation like this, you may wish you'd taken out an extended warranty. If you plan to keep your car for many years or are a high-mileage driver, adding this coverage once your factory warranty is up could be an excellent financial decision.
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