If it fits your current situation, leasing a vehicle can make a lot of sense. For example, leasing can mean a much lower monthly cost than purchasing a car, and the manufacturer’s warranty may cover you for the entire duration of your lease. Plus, when you lease, you can spend all your time cruising around in a relatively new set of wheels.
Just like a family who only plans to foster a pet but then welcomes the critter into its family permanently, you might find that you love the vehicle so much you want it to be a part of your life for longer than the term of the lease. Sometimes because of a shortage of in-demand models, the value of your used car may end up being higher at the end of the lease than the residual value on the contract. In this case buying your vehicle makes even more sense.
But before buying your leased vehicle, make sure it is the right financial move by arming yourself with the correct information. Here are some common questions to consider and some ideas for making the best choice for your needs and wants.
Do I Have The Option To Buy The Leased Vehicle?
It’s very common for leasing companies to offer this option. Check the language of your lease to be sure.
What If I Still Owe Money On The Lease?
You’ll need to pay the residual value (how much the car was projected to be worth at the end of the lease term), plus any lease payments left on the contract and other taxes and fees. Be aware that you may have to pay extra charges if you do an early buyout. This is another good piece of information to look for when examining the fine print of your lease.
In general, a great starting point in your decision-making process is calculating the total cost of buying the vehicle, so you have that as a reference point going forward.
Can I Wait Until The Lease Is Almost Over To Buy The Vehicle?
You can. In fact, you might find you can save big by waiting until your lease is almost up. The leasing company will typically reach out 30-90 days before the lease expiration. It may offer a purchase price for the vehicle better than the number provided in the contract. Historically, leasing companies have done this because having a buyer right then and there for the car is easier than going through all the steps of selling a used car. You might even be able to negotiate to lower the fees associated with the transaction, too.
Do I Have To Come Up With The Cash Up Front To Purchase The Vehicle?
You can finance the vehicle purchase just like taking out a loan to buy a new or used car off a lot. First, talk with your financial institution and other lenders about your finance options. The leasing company will likely try to offer you financing, but by no means are you obligated to take their offer. More often than not, you’ll get a better rate on the loan by going with an outside financial institution or lender.
Some financial institutions even offer lease buyout loans that function like a refinance of your lease terms. These tend to have higher interest rates than regular auto loans, though.
Paying with cash will save you money because you won’t be paying interest on any loan, but it may be difficult to come up with that much money all at once.
Is It A Smart Move For Me?
It’s a great idea to shop around before committing to anything. It’s easy to get attached to a car or truck, but if you can buy a used version of that exact vehicle for significantly less, it might not make sense to commit your money to your leased ride. Check out Cars.com, Edmunds, Kelley Blue Book, and TrueCar to get an idea of what your particular vehicle is going for these days.
When comparing costs, make sure to include the residual value in your lease agreement and any fees the leasing company has included in the lease agreement. Also, remember that you may need to pay sales tax when you buy out your lease.
Because of a recent overall surge in the market value of used cars, many people are finding the vehicle they’ve been leasing is worth more than the residual price listed in the original lease agreement. Some people are even turning a profit by purchasing the vehicle for the residual price and then turning around and selling it to a dealership desperate for quality used vehicles in the current tight market.
You may be able to do what is known as a lease pass-through, whereby in one transaction, you pay the leasing company the cost of purchasing the vehicle and simultaneously sell it to another party. This can help you avoid paying sales tax on the transaction.
If you’re expecting to pay for mileage overages and damages to the car should you turn it in at the end of the lease, it’s a good idea to calculate what these charges will be. If this number is high enough, you could come out ahead by purchasing your leased vehicle instead of turning it in and buying or leasing another one.
As with most financial decisions, whether or not to buy a vehicle you’re leasing comes down to crunching some numbers. However, given the current market for used cars, you might find your calculations reveal a solid incentive for holding onto your vehicle after the lease is up. If you do decide to buy, your Credit Union offers very competitive rates on Auto loans, plus special rate-discounts available to members with our free qualifying Direct Deposit.
