A lease buyout wasn’t always the best financial decision. If you listened to the most popular financial gurus, they wouldn’t suggest leasing to begin with. But, not everyone can handle a new car payment. There are benefits to leasing a car. However, the newest hot topic is lease buyouts. Is it a good idea to buy your leased vehicle when the contract ends?
Let’s take a look at some things to consider, and why lease buyouts are becoming more popular.
The Price of Used Cars is Still Inflated
Before any COVID-19-related disruptions, the average price for a used vehicle in December 2019 was about $17,500. By December 2021, the average used car price soared to more than $25,000 according to CarGurus. That’s a 44% increase. While prices have dipped a little since last month, used car prices are still inflated.
Part of the reason used car prices are so high is that there’s a imbalance between supply and demand.
Dealerships and manufacturers are still facing part shortages for cars from the pandemic. On top of that, worldwide sanctions against Russia caused a shortage of materials used to make car parts like catalytic converters and conductors. That means new cars aren’t coming off the line quickly enough, so used cars are sometimes the only option for shoppers. Therefore, demand for the product that’s available (used cars) is higher than the supply. As a result, the prices stay high.
So, if you want to buy a used car off the lot, you can expect a little bit of sticker shock still.
Your Lease Buyout Price is Set
When you lease a car, the lease buyout price is set at that time. It’s predetermined and won’t change. If you leased a car two or three years ago, your contract is likely ending soon. That means your lease buyout price was set before any of the current issues from the pandemic and supply chain shortages happened. Your lease buyout price hasn’t been affected by recent inflation. Right now, that price is likely under market value.
Compare Your Lease Buyout to a Dealer’s Price
Use sites like kbb.com to see what your car is worth. Look at local dealerships in your area or sites like cargurus.com or carvana.com to see what your car is selling for. If your lease buyout price is significantly lower than the current market value, you could keep the car (buy out your lease) and save money. You could also buy out your lease then sell it for a potential profit.
Easy Buyout Process
When you buy your lease at the end of the contract, the financing is the easy part. It’s a set price. There’s no haggling or dealing with salespeople. At Money Credit Union, all we need is the lease buyout price. You can typically get that from the leasing company or your online account with them. You can also work with a local dealer for your car’s make. For example, if you drive a Toyota Corolla, you can work with a local Toyota dealership for your lease buyout.
Once you have the details for the lease buyout price, we would approve you for a used auto loan. Then, we send the funds directly to your leasing company or dealer who’s working on your lease buyout. We can typically approve the loan and send the payoff to the leasing company or dealer within 1 business day.
What if The Dealer Wants My Car?
Again, do your research. You may get calls or letters from a local dealer that wants your car at the end of the lease. Don’t be quick to take their offer. Remember, they can turn around and sell your end-of-lease car for thousands more than they pay for it. If you’re in the market to either buy your lease or get a used car, take the time to compare prices.
New Leases Aren’t as Affordable as They Were Before
Leasing a vehicle was usually the “cheaper” way to get a new car. The monthly payments were far less than buying a new or used car. But, that was before inflation. Now, there is high demand and low inventory. LeeAnn Shattuck, an automotive expert and car-buying professional, known to many as The Car Chick, said, “In many cases, the money factor, which is the leasing equivalent of an interest rate, equates to 6% or 7%. Compared with 2% to 4% interest rates on car loans, and considering the higher prices of cars, monthly lease payments are almost as close as normal loan payments.”
You Already Know the Car’s History
One of the benefits of a lease buyout is that you know how you took care of the car. Regular maintenance is important when you’re talking about a used car. When buying a used car, you’re taking a chance on the vehicle’s history. While sites like CARFAX can tell you if the car has ever been in an accident, it doesn’t tell you if the previous owner changed the oil, rotated the tires, or kept up with regular maintenance. You certainly don’t want to inherit someone else’s problems if they didn’t keep up with the required car care. If you took care of your leased vehicle, it makes sense to buy out your investment.
If You Still Want to Lease, Pay Attention to the Fine Print
Leasing a car may still make sense for some people. If that’s the case, read the fine print. Are you getting enough miles to cover what you typically drive? If the dealer is only offering 10,000/year, but you need 12,000/year, that will cost you extra. Always ask what the lease term is too. If you and the dealer are focused on getting your monthly payment to a certain amount, you may not realize they extended your lease term to make the deal. To make the numbers (payment) fit what you want, dealers can extend what you thought was a 2-year lease to a 4-year lease. It’s not really beneficial to keep a leased vehicle longer than 2 or 3 years.
We’re here to help! If you need help making a decision, our team is happy to review the details of your lease buyout, compare prices, and help you find what works best for your financial situation. You can call, text, chat, or stop in. We’re here M-F 9am-4pm ET – (315) 671-4000.
Each individual’s financial situation is unique and readers are encouraged to contact the Credit Union when seeking financial advice on the products and services discussed. This article is for educational purposes only; the authors assume no legal responsibility for the completeness or accuracy of the contents.