Maybe you weren’t sure if you’d really like the car when you first got it. Maybe you weren’t sure that it would suit you in a few years. Whatever your reason for leasing a vehicle, if you’re considering buying it now that your lease is up, here’s a guide on when to consider it — or avoid it — and how to get the best deal.
What is a lease buyout?
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.
Lease-end vs. early buyout
Most people wait until the end of their lease to buy their vehicle, but it may be possible to buy earlier, depending on your contract. However, there are typically several disadvantages to an early buyout:
Early termination fees. In most leases, there are fees if you decide to end the lease early. These could be high, depending on your lease contract. If you wait until lease-end to buy the car, you won’t face the early termination fees.
Higher payments. Some people prefer leasing because payments are generally low, perhaps allowing them to get a newer or better car than they could otherwise afford to buy. After a buyout, your payments might go up, so waiting until lease-end keeps the lower payments going longer.
Taxes. When you first lease a car, you have to pay sales tax, license and registration fees, even though the car is not registered or titled in your name. Buying your leased vehicle means the registration, license and titling are all changing, so you have to pay for all of it again. The longer you wait to buy the car, the less the car will be worth, the lower the total amount of taxes and licensing fees.
How the lease buyout process works
Towards the end of your lease, this is the typical timeline of events you can expect. It includes when the lease company will contact you and when you should apply for loans.
The lender should contact you. If they don’t contact you to go over your lease end options, you should contact them. The three options you have at the end of a lease are to buy the car, return the car or return it and immediately lease or buy a new one. At this point, you should decide which option you want and confirm the process for ending your lease.
Assuming you do want to buy it and that you need a loan, you should get loan offers before the lease officially ends. But be careful with timing — don’t apply more than a month ahead of time, because most loan offers are only good for a month. After the loan offers expire, you’ll have to apply all over again. But, also, don’t apply for loans too late — if you keep the car for a few days after lease-end without buying it, you may receive penalties.
Tell the lender you want to do a lease buyout. They may ask if you’d like to apply for a loan with them for the remaining value of the car. And if you’re satisfied with your experience with them as your lease financing company, why not apply with them to buy the car? But don’t apply to just one place — you won’t hurt your credit by applying to multiple places within a two-week period. Apply to several lenders, see what they offer and take the loan that best suits you.
You may have to go to the DMV or your lender to sign paperwork to finalize everything and officially claim the car as yours.
If the lender that’s financing your lease buyout is the same one that leased the car to you, then you shouldn’t have much to do. If it’s not the same, the new lender will either send a check to the old leasing company, or send the check to you to give to them.
When looking for a new lender, don’t forget to shop around to compare auto loans so you can choose the one with the least amount of interest or the one with the lowest payment, whichever fits you best.