Jack Ferry started his career as a daily newspaper reporter before moving to Detroit and working in the auto industry for 25+ years in several corporate media relations roles. After completing an assignment for a consumer finance trade association in.
Jack Ferry ContributorJack Ferry started his career as a daily newspaper reporter before moving to Detroit and working in the auto industry for 25+ years in several corporate media relations roles. After completing an assignment for a consumer finance trade association in.
Written By Jack Ferry ContributorJack Ferry started his career as a daily newspaper reporter before moving to Detroit and working in the auto industry for 25+ years in several corporate media relations roles. After completing an assignment for a consumer finance trade association in.
Jack Ferry ContributorJack Ferry started his career as a daily newspaper reporter before moving to Detroit and working in the auto industry for 25+ years in several corporate media relations roles. After completing an assignment for a consumer finance trade association in.
Contributor Chris Jennings Loans & Mortgages EditorChris Jennings is a writer and editor with more than seven years of experience in the personal finance and mortgage space. He enjoys simplifying complex mortgage topics for first-time homebuyers and homeowners alike. His work has been featured in a n.
Chris Jennings Loans & Mortgages EditorChris Jennings is a writer and editor with more than seven years of experience in the personal finance and mortgage space. He enjoys simplifying complex mortgage topics for first-time homebuyers and homeowners alike. His work has been featured in a n.
Chris Jennings Loans & Mortgages EditorChris Jennings is a writer and editor with more than seven years of experience in the personal finance and mortgage space. He enjoys simplifying complex mortgage topics for first-time homebuyers and homeowners alike. His work has been featured in a n.
Chris Jennings Loans & Mortgages EditorChris Jennings is a writer and editor with more than seven years of experience in the personal finance and mortgage space. He enjoys simplifying complex mortgage topics for first-time homebuyers and homeowners alike. His work has been featured in a n.
| Loans & Mortgages Editor
Updated: May 25, 2022, 10:28am
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When in the market for a new vehicle, you might have decided to try leasing. After all, the monthly payments might be lower on a lease versus a loan.
But there will come a time during the end of the lease contract when you’ll need to make a decision on whether to turn in the car, seek a new lease on a different vehicle or offer to buy your current car from the leasing company.
If you decide you want to buy the vehicle, you’ll likely need a lease buyout loan. Here’s what you should know.
FEATURED PARTNER OFFERA car lease buyout is similar to a used car purchase—only this time, you’ve already been driving the vehicle for the past few years. A few months before your lease reaches its termination date, you’ll be contacted by the leasing company to review your standard lease-end options and choose one of the following:
But before the leasing company reaches out, you should do your own research and review the leasing agreement you signed. The agreement will contain the amount of the residual value of the vehicle. That amount is what the leasing company says is the value of the vehicle in three years (at your lease termination). This is a highly-educated estimate called the residual value.
Tip: Before you consider a lease buyout loan, check that buying the vehicle at the end of the lease term is an option offered in your lease agreement since it won’t always be an option.
Some lease agreements may prohibit buyouts in the first few months or the last few months of the leasing agreement.
You don’t want to be faced with a situation where you want to initiate a lease buyout with two months to go on the lease term, only to be told your contract prohibits buyouts in the final few months of the lease.
Banks, credit unions, online lenders and finance companies offer lease buyout loans. It’s best to shop around for your loan so that you can compare annual percentage rates (APRs) and terms.
The actual loan you’re preapproved for will be based on your income, expenses, credit score, APR, loan term and value of the vehicle as a used car. Because a lease buyout loan is essentially a used car loan, the interest rate and fees can be higher than on a new car loan.
If you decide on a lease buyout, follow these steps to start the process:
Your preapproved loan will be based on the residual value amount in the lease agreement plus the total amount of the remaining two or three payments you still owe to the leasing company. So, your estimate of the lease buyout amount is the residual value, plus the number of months remaining on the lease and the standard lease termination fees.
Keep in mind that the lending institution providing the lease buyout loan will hold the title as collateral on the loan, which is typical with new and used car loans.
Buying your leased vehicle should be a simple negotiation because you signed a leasing agreement at the start of the lease that contains the residual value of the vehicle at lease termination.
Nevertheless, you need to know the vehicle’s current value in today’s market. You can research the current value on sites like Edmunds, Kelley Blue Book or the National Automobile Dealers Association.
If the predicted residual value is:
Given today’s market, your leased vehicle’s residual value is probably less than the current market value. That’s why it would be a good deal for you to buy the vehicle for the signed leasing agreement’s residual value price. The leasing company is expecting to get the wholesale price of the vehicle that they would get at a dealer auction.
There are a few factors that might contribute to your decision to buy out your lease.
If you purchase the vehicle at the end of the lease agreement, you won’t have to worry about the expense of exceeding the mileage limit or the wear and tear restrictions because you’ll now own the vehicle.
Get up to 4 loan offers in minutes at myAutoloan.com.
