Many people prefer leasing cars because it allows them to drive a newer model vehicle every few years. The payments may also be lower than through financing. The major downside is that you’ll always have car payments and never build equity in the vehicle.
While leasing isn’t the right move for everyone, those drivers with leases ending soon are finding themselves in a unique position. The limited supply of pre-owned vehicles in the market is driving up the values of their leased cars – leaving many to contemplate whether they should buyout their lease.
Lease agreements are different from traditional car-buying in that you’re essentially “renting” the car for a designated period of time. Instead of eventually owning the car outright, you have the option to turn the car back into the dealer or buy it.
When leasing a vehicle your monthly payment is determined by the type of car, the number of miles you drive each year, and the length of your lease. Your buyout price (the price set if you wish to buy the car at the end of the lease) will also be predetermined when you sign the lease. This predetermined buyout price is causing a headache for the dealers and an excellent opportunity for lessees.
As the economy continues to recover from the COVID-19 pandemic, many industries are still struggling. Microchip shortages have driven the price of preowned vehicles up significantly. As a result, those with leases expiring soon are finding their leased car is worth much more than the predetermined buyout price.
For example, the buyout price on your lease might be $20,000. However, the current market value of the car is $27,000.
You can turn in the vehicle, and the dealer will happily turn around and sell the car at the higher market value – netting themselves a nice profit.
You can purchase the car at the lower buyout price – providing yourself with several opportunities that are in your favor, such as:
Keep the vehicle and drive it for several more years. Then use it as a trade-in or sell it.
Turn around and trade in the car at the higher value for a new vehicle – netting you a larger down payment.
Sell the vehicle yourself and profit from the difference.
While you may not have initially thought about buying out your leased vehicle, it may be the wisest financial move in today’s market. Here are a few reasons why you might buyout your leased car:
You Like the Car. You may find you really enjoy the car. If you kept it clean and well-maintained, it could be a good investment that will last you several more years.
The Lease Costs. If you haven’t taken great care of the vehicle, drove past the agreed mileage limit, or broke any other terms or conditions of the lease, you may face heavy fees. Buying out the lease could help avoid these costly fees.
Sell or Trade-In. If the vehicle’s value is significantly higher than the buyout price, purchasing the car might make more sense. You could buy the car, then turn around and use it as a trade-in on a new vehicle. Or you could purchase the car and then sell it to a private buyer.
While buying out your lease might not be something you considered before, it’s worth exploring in today’s market. If your lease expires soon, review your paperwork, and find the buyout price.
If you have questions about buying out your lease or are interested in getting approved for financing, we’re ready to help. Please stop by any of our local branch locations to speak with a member of our team today.
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