What is a Car Lease Buyout?

What is a Car Lease Buyout?
What is a Car Lease Buyout?
| Nov 09 2021
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What You Need to Know About Car Lease Buyouts

Leasing a car is a very popular option for many these days. But what happens when you love your car, and you just can’t bear to say goodbye?

When your car lease comes to an end, you typically have three options to choose from: lease trade in, lease turn in, and lease buyout. Here we discuss your three options and help you decide if a car lease buyout is the right move.

A car lease buyout lets you buy your existing car from your lender.

When your lease term comes to an end, you have three main options to consider. About three months before your lease end date, your lender should contact you to review your courses of action.

Understanding Your Options

Lease Trade In

A lease trade in is when you trade your old car in for a new car lease. In this case, you should determine your car’s value and compare it with the lease-end residual value that is listed in your lease contract. If the trade in value is higher (which is rare), you can use the difference to put a down payment on a new vehicle.

In most cases, the residual value will be higher and it will make more sense to return the car and start a new lease.

Lease Turn In

A lease turn in is exactly that; you return your car to the dealer as is. You will have to look at your contract carefully and determine if you are responsible for any fees. An inspection will be performed when you trade in your car and you will be responsible for excessive wear and tear, any dents and dings on the exterior of the car, and any stains or tears on the car’s interior. Excessive mileage fees may also apply, which can add up fast.

Lease Buyout

A lease buyout lets you buy your car directly from your lender. If the first two options are less than ideal, a lease buyout might be the right option for you. 

In most cases, you can buy your car lease at any point during your lease period. If you want to buy out your loan early, you will need to discuss this with your lender as it will affect the residual value of the car. It is often not financially beneficial to buy a lease out early. It is much more common to wait until the end of the lease period to broach the subject of a lease buyout.  

How a Buyout Works

A car lease buyout is different than buying a new car. You already have knowledge of your car’s condition so you should have fewer concerns over the investment. The buyout loan amount will also be significantly less than buying a new car. Let’s look at what you should consider when deciding if a lease buyout is right for you.

Valuing Your Car

First and foremost, you should determine the value of your car. There are two main factors that you should consider:

  • Residual Value. Your car’s residual value is listed in your existing loan contract. The residual value of a car is based on your car’s expected depreciation over the life of your loan and is predetermined by the leasing company. This number is usually non-negotiable.
  • Market Value. The demand for your car will greatly affect the market value of your car. If it is a popular make and model, it will have a higher market value. Use websites such as Cars.com, Edmunds.com. Or Kelly Blue Book to determine the market value of your car.

When you are buying out your lease, you are bound to the residual value of the car. It is important to know what the market value is of your car to determine if it makes sense to purchase it. If the residual value of your car is $16,000, but the market value is $13,000, it would mean that you are paying $3,000 more than what your car is actually worth. 

There is no rule on when exactly it is worthwhile to purchase your car, but if the residual value is within a few hundred dollars of the market value, it is probably a fair deal.

Additional Buyout Considerations

If you are happy with the residual value of your car, there are a few more factors to take into consideration.

  • Excessive mileage. Have you exceeded the mileage amount allotted in your lease agreement? If so, you will be subject to per-mile penalty fees that can vary from $.10 to $.30 per mile. If you were consistently driving several thousand miles per year over your limit, that can add up to several thousand dollars. If you choose to buy your vehicle, you will not have to pay these fees, so this money can instead be put towards your buyout. 
  • Your Car’s Condition. Your car is subject to inspection when your lease period is up. You will be charged a fee if there is excessive damage, such as exterior dents and dings, interior tears and stains, or mechanical issues that the dealership considers beyond normal wear and tear. 
  • Disposition Fee. The disposition fee covers all costs associated with reselling your car, and can be a few hundred dollars. This pays for the dealership to clean and detail the car, and make any necessary repairs before reselling.
  • Cost of Maintenance. If you want to keep your car, it is important to do additional research to determine what your cost of maintenance will be in the next several years. If there are several expensive maintenance costs that will pop up, you will need to compare this cost with the savings from the other fees.

How to Buyout Your Lease

You’ve run the numbers and you think that buying out your lease makes the most sense and is your best option. What next?

Call your existing leasing company. 

Get a comprehensive list of all costs associated with the buyout. Make sure this number includes sales tax, which can be a significant amount.

Shop around for rates. 

Go online and look around at different rates. Not all lenders offer buyout loans, so you will have less options than when you originally financed your loan. It is also important to note that lease buyout loans are used car loans, which tend to have higher interest rates than new car loans. At AutoApprove we work with lenders that do offer lease buyout loans, and can help find you the best rates available.

Your rates will be based on prevailing interest rates in the industry as well as on your personal finances, just as your initial loan. Make sure you have all necessary documents for your loan application: 

  • Photo ID
  • Your Vehicle’s Information
  • Proof of Income and Financial History
  • Proof of Residence
  • Proof of Insurance

Having all necessary documents ready to go will help to streamline this process. Be sure to apply to all lenders within a fourteen day period. The credit bureaus allow all credit inquiries in a fourteen day period to count as one credit hit, so it will not adversely affect your credit score more than necessary.

When the lenders respond with their offers, compare the rates and terms. Be sure to use any offers as leverage with your existing lender; they would love to set up a purchase loan and get your additional business. Always give your existing lender a chance to beat any offers you get. 

At AutoApprove we can help you shop around to compare rates and terms and find the best option for your buyout loan

Call Your Insurance Company

You will need to notify your insurance company of your new lender. This is also a good chance for you to review your insurance needs. On a leased vehicle, you are typically required to have high levels of liability coverage. You may decide that you do not need such a high level of coverage based on where you live or how much you drive, and you can opt for lower payments by reducing this coverage. 

Make Sure All of Your Paperwork Is In Order

Talk to your lender and be sure to visit your state’s motor vehicle department to transfer the title and make sure all of your paperwork is in order. Your lender should be able to guide you specifically through what steps you need to take.

If you have considered all of your end of lease options and determined a lease buyout might be right for you, AutoApprove can help you with the next steps.

Look at all of the financial considerations and decide if buying out your lease at the end of your term is a good option for you. At AutoApprove we can help you apply and shop around for the best rates for your lease buyout loan, and we never add on markups. We pass all of the savings right on to you. We know car financing can be complicated and stressful, and it is our goal to streamline it and save you as much money as possible. Contact us today to see how we can help you!

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