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By Jamie Smith
Leasing a car can be a great way to keep your monthly payments low and get behind the wheel of a brand-new vehicle every few years. If you've enjoyed driving your leased car, it may make sense to purchase it outright. Before you do this, there are some factors you should consider.
Purchasing a car you've been leasing may make sense, but it's important to do some investigating before you make a final decision. The purchase could be worthwhile if the amount you're expected to pay is about the same or less than the current retail price for the vehicle. If your lessor is asking for considerably more money, your best option may be to return the vehicle and look for a better deal elsewhere.
Another bonus to buying your leased car outright is that you'll no longer have restrictions on how much you can drive it. Lease agreements typically impose a mileage limit of 12,000-15,000 each year. If you drive any more than that, you have to pay an additional charge.
You may have driven your leased vehicle significantly more than the allowed limits during your lease. If this is the case, buying it outright could save you the expense of compensating the dealership when you return your vehicle to them.
The final advantage of buying out your leased vehicle is that you won't have to continue making lease payments. Once you've paid off your lease buyout loan, the car will be yours to keep driving for as long as you like. The only ongoing costs you'll face will be maintenance, gas, insurance, and repairs.
If you decide that buying out your leased vehicle is the right option for you, follow these steps to make sure you get a good deal.
The first step is to check your lease agreement. If you intend to wait until the agreement expires before purchasing your vehicle outright, make a note of the residual value it was given by the lessor. Most lease agreements typically add a purchase fee onto the residual value to arrive at a purchase price that you'll have to pay. If you're thinking about trying to buy the vehicle sooner, check whether there are any charges for ending your lease early.
While it may be tempting to buy your leased car as soon as possible, you may get a better deal if you wait until the lease deal expires. For one thing, you won't have to pay any early termination fees. Additionally, you may be in a stronger position to negotiate better terms on the sale price by waiting. Some leasing companies have a policy of not negotiating any adjustment to the purchase price during the term of a lease deal.
Once you know your leased car's residual value and purchase fee, it's time to investigate what its current market or retail value is. You can choose from a number of online vehicle valuation tools to do this, including Edmunds and Kelley Blue Book. All you'll need is the model and age of your vehicle, as well as the mileage you've driven. You can then compare the market value with the purchase price that your lessor is asking for in your lease agreement.
If the two values are roughly the same, you can consider purchasing the car. On the other hand, if the market value has dropped significantly below the purchase price since you first took out your lease, you may want to try and negotiate a better price with the dealership. If this proves impossible, you may secure a better deal by looking for a pre-owned version of the same vehicle model elsewhere.
A useful tip to get a better deal is to wait for the dealership to call you. Most dealerships will contact you around 90 days before your lease expires. By waiting for them to make the first move, you'll put yourself in a better position to negotiate a more competitive price. For example, if they call and ask if you're interested in buying your leased car outright, you can say you’re interested but that you find the purchase price in the lease agreement too high. The dealership may make you a better offer to save the hassle of looking for another buyer. If they don't, point to your research to show that the market value of the vehicle is lower than the purchase price.
If you don't wait for the dealership to call and instead make the first move, they may be more reluctant to offer you a better price. If they know that you're very interested in the vehicle, they may assume that you'll be willing to pay the full purchase price to buy it.
Unless you have a significant amount of savings on hand to purchase a vehicle, you'll need to arrange auto financing to buy out your lease. There are specific auto loans designed for this purpose. For example, Alliant works with a partner company, Lease Maturity, to offer lease buyout financing.
Arranging lease buyout financing is a bit like refinancing an auto loan. You'll need to complete an application, which includes details about the terms of your lease and the lessor. If the lease is still ongoing and you need to pay an early termination fee, the lease buyout loan can cover this cost.
Before you finalize the financing agreement, give careful consideration to the loan's length. No matter how well you've maintained your leased car, it's increasingly likely to need repairs as it gets older. That's why it's a good idea to keep your lease buyout loan as short as possible. A longer loan may reduce your monthly payments, but it could also leave you facing negative equity if problems arise with the vehicle. Negative equity occurs when you owe more on your auto loan than your vehicle is worth.
Once you've finalized the vehicle purchase, remember to contact your car insurance to update the details. If it has been several years since you last checked your insurance terms, now may be a good time to compare offers to see if you can find a better deal. One benefit to insuring a vehicle that's a few years old is that auto insurance rates are typically lower than for new vehicles.
You'll also need to register your car or SUV with your state. As with insurance rates, registration fees are usually lower for used vehicles compared to new ones.
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