Love the car you lease? Buying out your lease might be your best bet.
Buying out a lease should normally be straightforward when the option is available. Determining whether a buyout makes sense can take a bit of thinking but should generally be fairly easy, too.
Lease Terms and Timing Determine Whether Buyout is an Option
Just about every lease contract today grants the lessee the right to buy the associated vehicle at the end of the term. This is the most common time to arrange a buyout and often works well for both the leasing company and the car’s new owner.
Many contracts also provide for an “early buyout” to occur before a lease comes to a natural end. This option will often be limited in various ways, as with fees charged for the privilege of exercising it or lockout periods that cover portions of the lease term.
Simply looking through an active lease contract should establish whether buying it out will be possible at any point. Otherwise, getting in touch with the lease company should produce a clear answer.
Three Types of Value to Understand: Residual, Wholesale, and Retail
Lease payments and related financial details are based on a vehicle’s initial value and estimated future depreciation rate. With each payment you make, the so-called “residual value” of your vehicle declines.
That residual value will normally be used to set the buyout price, with fees often being added. Should you choose not to buy the vehicle, the leasing company will normally liquidate it at a wholesale auction.
Residual value is calculated according to a set, transparent formula, but the wholesale value of vehicles fluctuates according to market conditions. In some cases, a leasing company will be more inclined to accept a lower buyout offer if wholesale prices are currently depressed.
The retail value of your car should also figure into your calculations. This will help determine whether handing over the keys so you can purchase or lease a different vehicle makes more sense than a buyout. It can also impact the difficulty of obtaining financing for a buyout, especially if the retail and residual values are far apart.
Putting It All Together: Does Buying Out Your Lease Make Sense?
Even when a buyout is an option and the financial details seem mostly favorable, accounting for any other relevant details will help you make a more informed decision. If you put more miles or wear and tear on your vehicle than allowed in the lease, for instance, a buyout that lets you avoid penalty fees could become more attractive.
Buying out a lease can even make sense when you do not plan to retain ownership thereafter. In some cases, buying your lease out and then selling the vehicle or trading it in can be the most financially sound option. More often, though, a buyout will be appropriate when you like a leased vehicle and want to keep driving it.
