Should You Buy Your Car At The End Of Your Lease Instead of Buying Or Leasing A New Car?
Photo by Roland Denes on Unsplash
When your car lease ends, most people will return the car to the manufacturer or leasing company. But, if you really like your ride, you may consider buying the vehicle at the end of the lease. With the recent craziness in the used car market (thanks to the pandemic), the car may even be worth more than initially determined. Plus, it may be harder to find a new vehicle with favorable pricing. Let’s look at what’s involved in purchasing your leased car and if it makes sense.
What Is A Lease Buy-Out?
For simplicity’s sake, think of a car lease as a long-term car rental for your exclusive use over an agreed-upon length of time and set amount of mileage. At the end of the term, you are contractually permitted to return the car and walk away (plus pay for any contract-specified fees). Or purchase the vehicle at a pre-set price. For example, if you leased a $35,000 Toyota Camry for three years, the buyout price at the lease’s end might be $24,000. That’s the amount (plus any taxes) you’d pay to Toyota Financial Services to acquire the car. Depending on your preference and capability, you’d pay the total amount upfront or finance the vehicle with a loan.
FEEL SECURE IN THE CAR YOU CHOOSE
You don’t want to buy a car - you want to get the best deal on the car you’re looking for. The CoPilot app will notify you if there’s a similar vehicle in your area at a better price, so you’re always certain you got the best deal available.
Is A Lease Buy-Out Worth It?
Buying your car at the end of your lease may be a good idea if certain factors are in your favor. Let’s look at the details.
- Equity: Equity is your car’s value less the buy-out price. So, if that Camry is now worth $27,000, but the buy-out will cost $24,000, you have $3,000 in equity. On the other hand, if the Camry is worth $22,000, negative equity would be $2,000 in negative equity. In general, you want to avoid negative equity situations (sometimes called being “upside-down”) as you’ll have no equity later on when trading in or selling a car with a loan. You could even owe more money when moving on to another vehicle. In some cases, you might find that a used car similar to your own vehicle may cost less to buy than the lease’s buy-out price. If your car’s equity is close to zero, then you’ll want to consider how much you like the vehicle and its condition. The easiest way to determine your car’s value is to get purchase offers from multiple car buying companies (like Carvana and CarMax). Be sure to get at least three to five offers and be honest about your car’s condition and mileage. The results and the differences in the quotes will surprise you.
- Mileage: The car’s mileage will play a significant role in determining the worth of buying your vehicle at the end of your lease. A low-mileage vehicle is appealing because there’s less wear and tear on a car you might keep for longer than expected, and reduced use increases value and equity. On the other hand, a high-mileage car might involve repair and maintenance expenses down the road. Also, keep in mind that you will have to pay for mileage above the allocated amount specified in the lease contract. If this is the case, be sure to calculate this cost in your decision process.
- Condition: Like with mileage, a car’s condition is also an important part of the lease buy-out exercise. Obviously, a pristine vehicle is worth more than one in poor mechanical condition or with significant body damage. For example, if it will cost $2,000 to replace a damaged bumper on your leased car, then a buy-out might make sense if you don’t want to fix the car (and don’t might driving around in a dinged-up vehicle). Keep in mind that a leasing company will charge for damages beyond normal wear and tear.
WHAT TO DO IF A DEALER REFUSES TO CANCEL EXTENDED WARRANTY
Car buying can occasionally be frustrating, especially if you’re purchasing your vehicle through a dealership. We’re here to tell you how to navigate a situation in which a dealer refuses to cancel your extended warranty.
- Reliability: Has your leased car been reliable? If not, getting rid of a troublesome ride may be a welcome relief regardless of any potential equity advantages. In contrast, keeping a problem-free car could offer priceless peace of mind when the factory warranty expires.
- Replacement Vehicle Cost: Think about what a new car will cost if you just return the leased one. What will the upfront and monthly costs be? Getting back to that Camry example, if all you’ll be doing is leasing another Camry, then buying the car at the end of your lease could be more logical. You’ll get off the car leasing cycle and have less to worry about regarding equity and value (much of the car’s depreciation has already happened).
- Equipment: Consider if your current vehicle has all the equipment you want. Does it have the features (like advanced safety gear or an infotainment system) that might only be available on a new car?
Negotiating The Buy-Out Price
It never hurts to ask the leasing company if there is flexibility on the cost of buying your car at the end of your lease. Most of the time, the buy-out price is fixed (especially in recent times when used car values are inflated). However, the company may refer you to a local dealer to discuss buy-out options. You can use this opportunity to discuss a reduced purchase price in exchange for financing the buy-out through the dealer. At the very least, ask that any buy-out fee be waived.
Using Your Lease As A Down Payment
Even if you’re set on buying or leasing a new car, don’t leave money on the table if your current vehicle has any positive equity. Returning an auto in this situation means skipping the opportunity to reduce your down payment or upfront costs. After negotiating your best deal on the new vehicle, present the top buyout offer (see above) to the dealer and ask them to match it. Even the dealer can’t compete, just sell the lease to the best quote provider and apply the cash to the new deal.
THE BEST TWO-SEATER CARS
If you’re in the market for a speedy two-seater, we’ve got you covered. Check out our list of the best two-seater cars on the market today.
Important Changes To Some Lease Buy-Outs
Due to the tight used car market, some manufacturers, including General Motors and Honda, restrict the lessee’s (you, the person leasing the car) ability to sell a leased vehicle to a third party (like CarMax or Carvana). This means you may be limited to using the car’s equity towards a new automobile from the same brand. However, you can still directly buy out the car at the agreed-upon price.
Get a Curated List of the Best Used Cars Near You
The CoPilot car shopping app is the easiest way to buy a car. Tell us what you’re looking for and we’ll search the inventories of every dealership in your area to make you a personalized list of the best car listings in your area.
Only looking for newer models? CoPilot Compare is the search engine for nearly-new cars. Only see cars five years or newer with low mileage — CoPilot Compare is the best way to find off-lease, early trade-in, and CPO cars.
The best part? CoPilot is built using the same technology that dealerships use to buy and sell their inventories, so we have more info on each vehicle than competitors. CoPilot doesn’t work with dealerships, so there are no sponsored posts or other shady practices — just the most info on the best cars. Check out our About Us page to see how CoPilot works.
