A lease is often equated to renting a car, but a better analogy might be renting an apartment. When you lease an apartment, you’re buying the right to use it for a certain period of time. The same is true for car leasing.
However, unlike most apartments, when a car lease is up, you can’t sign for more time — you can either turn the vehicle in or buy it. Buying your leased car is called a buyout. It can be done by paying cash or by obtaining a loan the way you would for any car purchase.
Three months before your lease ends, the lease provider should contact you to go over your lease-end options. You then have two months to decide what you’d like to do. Assuming you decide to buy your car, you should apply for a few lease buyout loans in the last 30 days before your lease ends. Get a few offers to compare, then go ahead and sign the best one offered to you if it all looks good, about a week before your lease ends.
A car lease buyout could be a great opportunity to purchase the car you fell in love with or a great way to avoid paying high lease turn-in fees. To complete a lease buyout, you can either pay cash or get a lease buyout loan to purchase the car. If you’re considering buying it now that your car lease is up, here’s a guide on when to consider it — or avoid it — and how to get your best deal.
If the lessor does not contact you, you should reach out to them. Typically, there are three options for you to choose from.
Buy your leased vehicle for the residual value either by paying cash or getting a lease buyout loan. Use a car loan calculator to run some numbers and see what payment you could expect. Then rate shop and see which lenders are offering your best auto loan rates.
Make sure your choice is comfortably affordable for you. The conservative 20/4/10 budgeting rule could be a good guide on how to structure your transportation costs within your larger budget.
Return the car, pay any fees and walk away. If you’re unsure what charges you may face due to excess mileage or wear and tear, ask the lease provider for a pre-inspection that would provide an estimate on any repairs and fees.
Some auto manufacturers automatically offer free inspections and repair estimates. You may even be able to have an inspector come to you. Schedule it as soon as possible as the inspection itself usually needs to occur three to two months before your turn-in date.
Trade in your lease to immediately lease or purchase another vehicle. You don’t have to go back to the same automaker to do this. If you use your lease as a trade-in, the retailer essentially buys the car for its residual value. And by doing this, you may be able to score incentives on a new vehicle, such as a lease trade-in bonus and/or a brand competitor or brand loyalty rebate. However, rebates and incentives change from month to month, so you may only be able to see what deals apply to you in the month that you plan to trade in your lease.
At this point you should know how you’re going to buy your leased car — with cash or a loan — and prepare to do so. With one month or less to go before your car lease ends, you should not face any early termination fees or penalties. The lessor shouldn’t charge you, say, $15, for completing the paperwork and buying your vehicle a day early. But read your contract or contact your lease provider if you have any questions.
If you do want to buy out your lease in cash, talk directly with your lease provider who will help you arrange the transaction and transfer paperwork. If you’re debating whether to buy it outright or get a loan, consider financing half of it and getting a lease buyout loan for the other half. This would leave some of your liquid assets free either for investing or just as a cash cushion. Only financing half the car’s value would mean a better loan-to-value ratio and a potentially improved rate.
Most auto loan approvals are good for 30 days, which is why you want to apply for them when you have about a month left to go on your lease. Apply to a few lenders of your choice, such as your local credit union, a national bank or online lender. Don’t apply to just one place — see what a few lenders offer and take the loan that best suits you
Applying may cause a temporary drop in your credit score, but multiple applications don’t hurt your score any more than one, as long as you file all applications within a two-week period. The credit reporting bureaus allow this window of time specifically so consumers can rate shop without undue penalty. Plus, the benefits of shopping around for an auto loan should outweigh any cons.
Once you have chosen the right loan offer for you, contact the lender and complete the paperwork process to secure the loan. The lender will coordinate transferring the title and all paperwork. They may send you a check to use to pay your current lender, or they may send a check to the lease provider directly.
This is your deadline. By the end of the day on this date, your buyout, turn-in or trade-in should be completed. If it isn’t and you haven’t arranged a lease extension or other remedy, you may face fees from the lease provider. The severity of the fees will depend on how late you end the lease. For each full or partial monthly period that you keep your leased car without permission, the fee could be similar to your monthly lease payment.