Buying Out Your Leased Vehicle: The Pros and Cons

What are the advantages of a lease buyout?AprilFeatured_LeaseBuyout
The car you’ve been leasing for the past 36 months is amazing — still with low mileage and still in great shape; it rides like a dream and is perfect for your lifestyle. You’re strongly considering keeping the car when your lease is up by buying it out. But don’t be so hasty.

There are certain situations that are better suited over others for a lease buyout, but what are the positive and negative aspects of the situation?

Advantages
So maybe you didn’t keep your car in such great shape — it’s got a couple of dents and scratches. Or perhaps you went a hundred or so miles over your mileage limit. Unless you purchased the excess coverage, that “small” damage and those “few” miles can add up in the form of fees upon return of the leased car. If you decide to purchase the car, all those extra, unforeseen fees will disappear.

You can also potentially save yourself money by renegotiating with a lending company. Lucy Lazarony from Bankrate.com recommends letting the leasing company come to you.

“Make the first move and you could blow your best chance of negotiating a good deal on your lease buyout,” Lazarony says, adding that this is also the time to ask about other possible incentives, such as eliminating the purchase-option fee or discounting financing on your buyout loan.

Lazarony notes that successful negotiation is much more likely when you are dealing with a smalltime lender.

On the other hand, if you want to avoid getting those pesky phone calls constantly inquiring about your lease-end decisions and money is less of a concern, then informing the company about your buyout choice right away is the way to go.

“Let’s face it, shopping for a car takes a lot of time and energy. Buying your leased car can save several weekends on car lots and most of the frustration that comes with the process,” according to Russ Heaps of Autotrader.com.

Finally, you might get lucky and your vehicle is worth more than its residual value (also known as the payoff amount), so your purchase price will be much lower than expected.

Disadvantages
The other side of the coin, however, would be that your vehicle’s residual value is higher than what it’s worth, turning a positive into a negative. Furthermore, the entire premise of a lease is to make it more attractive for those who want to return the car when their term is up. The pricing formula includes adjusting three factors: initial sale price, interest rate and residual value.

“First, automakers typically lower the initial sale price of the car, called the ‘cap cost.’ They may also lower the interest rate of the lease, aka the ‘money factor,’” explains Tara Baukus Mello of Bankrate.com. “These changes may be done in combination with increasing the residual value or the amount you pay if you want to buy the car at the end of the lease.”

That said, lease buyouts generally end up being more expensive than if you had just decided to purchase the vehicle from the get-go.

Buying, leasing and buying out your lease are not your only options, however.

“If you don’t want to buy the car, you can apply your equity to a new lease,” says consumer expert Herb Weisbaum. “You could also choose to sell your leased car to the dealer. Dealers need low-mileage used vehicles. So right now they are often willing to pay more than the residual value, especially if the car is in good condition and within the mileage allowance.”

Regardless of which option you are leaning toward, just remember to do your research. A smart, informed consumer always ends up with the best deals. And when you have any questions about finances, give us a call or stop by.

Used with Permission. Published by IMN Bank Adviser Includes copyrighted material of IMakeNews, Inc. and its suppliers.

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