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'll discuss your three options and help you decide if a car lease buyout is the right move for you.
In short, 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.
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.
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.
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.
First and foremost, you should determine the value of your car. There are two main factors that you should consider:
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.
If you are happy with the residual value of your car, there are a few more factors to take into consideration.
You’ve run the numbers and you think that buying out your lease makes the most sense and is your best option. What next?
Get a comprehensive list of all costs associated with the buyout. Make sure this number includes sales tax, which can be a significant amount.
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 Auto Approve, we work with lenders that do offer lease buyout loans, and can help you get the best rate 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:
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. At AutoApprove, we can help you shop around to compare rates and terms to find the best option for your buyout loan.
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.
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. And when you work with Auto Approve, we handle the DMV paperwork for you!
If you have considered all of your end of lease options and determined a lease buyout is the right option for you, we're here to help you with the next steps so you can keep your car, hassle-free.
At Auto Approve, we never mark up rates on car buyout loans or vehicle refinancing, so you know you're always getting your best possible rate. We pass all of the savings right on to you. We know car financing can be complicated and stressful, but we're here to streamline the process and save you as much money as possible.
Check out our auto lease purchase options and get started today!