How Do Lease Buyouts Work?
Once your lease term is over, you’ll have the option to either extend your lease, return the vehicle, lease the car again, or purchase it. If you wish to buy your vehicle after the lease term is over but don’t have much cash in hand then you can opt for secure financing with a lease buyout loan.
A few things to consider before applying for a lease buyout loan are:
- Whether you plan to take out a lease buyout loan from a bank, credit union, or finance company. Rates and terms may vary by lender. Make sure to check and compare with different lenders
- You can use free online tools to know the actual market value of your leased car. This helps in knowing if it’s worth buying. Check for additional fees for purchasing the lease
- Leased cars mostly require secure financing since they’re considered used vehicles. Typically, interest rates are higher for used car loans than they’re for new car loans
Understanding The Math
The majority of leases include a buyback price. This is the amount you’ll have to pay if you want to hold on to the car. This will be determined before your lease begins. The monthly outlay will be the sale price of the car minus the residual market value of the car divided by the number of months on the contract.
Consider a new sedan worth $25,000. Over three years, the leasing firm projects the car’s worth to be $20,000. This becomes the residual value or the basis for the buyback price. Let’s say after three years, the lender is charging fees of $1,500 for going over mileage. Therefore, the total buyout cost of the car at that point in time is $21,500.
Types of Buyout
There are two types of car lease buyouts:
- Car lease-end buyout: This is when you buy the vehicle at the end of your lease. This option should always be compared to the other lease-end options to help decide if it’s the right decision for you. The residual value of your leased car mentioned in your contract is the end-of-lease buyout purchase price of your car. This can be negotiated. Many lease companies have “residual insurance” that helps them to make up the difference between the wholesale price and the residual price in the contract
- Car lease-early buyout: Purchasing your leased vehicle before the lease term ends is known as an early lease buyout. This is much more complicated because of the way the payoff amount is determined. The amount that you owe on your lease will be higher. This will be because of the low monthly lease payments that couldn’t keep up with the depreciation of your car’s value
How To Get A Car Lease Buyout Loan
- Contact the leasing company: If you’re near the end of your leasing term then your leasing company will get in touch with you with the different options. Speaking to the lender will help clear any doubts you may have about the end-of-lease costs or the residual value of the car. Lenders will also explain to you the fees that are involved in opting for a lease buyout
- Check and compare: Many lenders offer to apply for preapproval. This helps you to know the estimated amount you can borrow along with what your APR and loan-terms might be. However, this can be a hard inquiry on your credit which can lower your credit score by a few points
- Finalize the Loan: Once you’ve been approved for a car lease buyout loan, you can then finalize the contract and transfer the title of the car. The title will probably be in your lender’s name until your lease buyout loan is paid off
Bottom Line
Before deciding to buy your leased vehicle, you’ll want to look into financing. It’s very important that you do the proper research and decide on the right lender. Make sure to check the lease-purchase fees and the interest rates you’d be paying in order to buy your leased car.
