Leasing a car is sometimes the most convenient way to secure the use of a vehicle, but there may come a time when you want to own your car outright and eventually stop making monthly payments.
Owning your car gives you the freedom to use it however you like and means you'll have an asset to sell or trade-in when you want to upgrade. Read on to find out how to buy out a car lease.
What Is a Lease Buyout and How Does It Work?
A lease buyout is when you pay your leasing company an agreed amount of money to end your lease contract and transfer the ownership of the vehicle to you.
In your lease agreement, you'll find the car has been given a residual value based on what your leasing company predicted the car would be worth at the end of your lease. This estimated value takes into account depreciation (or loss of value over time).
Your lease buyout amount may include:
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Your Car's Residual Value
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Your Total Remaining Lease Payments
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One-Off Fees or Charges to End the Lease
What to Consider Before Buying Out Your Lease
Before you go ahead with your buyout, you need to add up the costs and be sure it makes sense for your financial situation and the specific car you want to buy out.
Then, after you've crunched the numbers, you should consider the following points.
Mileage
If you added significant miles to the car while you were leasing it, you may need to pay excess mileage charges – from $0.10 to $0.25 per mile – so buying out your lease could be a way to avoid this penalty.
Keep in mind that a car with high mileage may need more maintenance and repairs, and you'll be paying for all expenses once you're the owner. So you'll need to weigh up the pros and cons.
On the other hand, if the car has low mileage, the car will have a better resale value by the time you add on more miles and then sell it in the future. You may also get a discount on your car insurance if you drive under a certain amount of miles per year.
The Condition of the Vehicle
If the car has taken a few knocks since you've been leasing it, you may be hit with an excess wear-and-tear or reconditioning fee.
Buying out the lease could be a way to avoid paying these fees but make sure you don't mind having a few bumps, scrapes, and spills on the vehicle you plan to own. And think about how well you'll be able to repair any damage before it comes time to resell it.
The Car's Current Value
Nowadays, there are many car-buying services that will offer you cash for a used car. To find out what your car is worth on the current market, just enter the details into Best Reward’s Auto Buying Center HERE.
If you signed your lease several years ago, you might find the current value of your car is much higher than the residual value in your lease agreement. In this case, it could make sense to buy out your lease.
How to Buyout a Car Lease
Of course, a lease buyout means you're buying the car in full so you'll need to have the funds ready. Here are the steps you might take when buying out your lease:
1. Apply for an Auto Loan
Best Reward Federal Credit Union offers great rates on auto loans that will likely be lower than car dealerships or other financial institutions, so it's a good idea to check there first if you live in the area.
When shopping around, be sure to look for a competitive annual percentage rate (APR) and a term that fits your budget.
2. Request a Lease Buyout Package
Contact your leasing company and ask for their lease buyout package.
This might be a simple one-page fax with the price that was set in your contract, or it could be a multi-page package with an odometer disclosure (stating how many miles the car has been driven), a power of attorney (POA) form, and more.
3. Pay Sales Tax
Be prepared to pay sales tax if you go ahead and purchase the car. This could be around 5% of the value of the car, and you may also have to pay county sales tax.
Are You Ready to Buy Out Your Car Lease?
After weighing up the pros and cons of buying out your car lease, you may feel ready to take the next steps into car ownership.
Owning your car will give you confidence knowing that it's yours with which to do anything you like – from taking a cross-country road trip to becoming a ride-share driver in your free time.
With that in mind, an auto loan is a convenient, low-interest option to fund your choice. Click below to find out more!
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