What Happens When Your Lease Expires?

Lease periods are typically two to three years and after the period you have a few options. You can return the car, lease a new vehicle, or buy the car you have been leasing. There can be benefits to all three decisions and it will depend largely on your personal needs. This article will focus on purchasing the car you have been leasing, referred to as a lease buyout. When you’ve found a great car, a benefit of a lease buyout is that you can take ownership of it.

Buying out your leased car is much like buying a pre-owned car, except that in a lease buyout your purchase price is predetermined at the start of your lease. However, it’s important to know that different leasing contracts make provisions for different scenarios when the lease expires. For instance, you, the lessee, may sign a contract where the down payment and monthly payments might reduce the lump sum owed at the end of the lease. Any provisions will depend on the details of the contract with the leasing company, also known as the lessor.

What Costs Are To Be Expected With a Lease Buyout?

Your lease term has an expiration date and the car needs to be inspected at or post-turn in. This is where charges for more than the normal wear and tear on the vehicle may be assessed, such as a cracked bumper or excessive door dings.

Lessors typically have online guides to inform lessees what is acceptable, but generally the lessee is charged for any repairs on the vehicle above a certain threshold. Additionally, leasing contracts often limit your yearly mileage and when you surpass that cap you can be charged a fee for each additional mile.

For example, let’s say your mileage cap is 15,000 miles per year and you drove an additional 5,000 miles that year. If you had an overage fee of $0.25 per mile, that means you would need to pay an additional $1,250 when you turn in the vehicle.

Considerations When Buying Out a Car Lease

Market Value of the Car

As a buyer, you should conduct the same due diligence as you would when buying any other used car that stretches beyond kicking the tires and doing the perfunctory glance at the engine bay. It might help to engage someone who is knowledgeable about cars to give your leased car the once-over to make sure it’s still in good shape. On the plus side, since you’ve been driving the vehicle for the past few years, you know how you’ve treated it and any potential issues.

You should also check out whether you’re getting a good deal by shopping around to determine the market value of the car. For example, search on used car valuation sites like KBB.com or JDPower.com for your car’s make, year and model.

If the lease buyout price is under the typical market value for that car, you might have a good deal on your hands. If the price is over, determine penalties you may have to pay at the end of the lease term, such as the mileage cap surcharge, and deduct it from the lease buyout price. If the price is still over market value, take that into consideration when making the decision to purchase the car.

For example, Lisa leases a car that has a residual value of $8,000, and her mileage cap surcharge is $1,250. If the leasing company wants more than $9,250 for the car, Lisa may be overpaying for the car. Bear in mind that the value of the car will also include variables such as the condition of the car and mileage.

Your Buyout May Be Negotiable

Using the techniques above to broaden your knowledge, you may be able to negotiate a better price. Other factors that may improve your chances of getting a better purchase price include offering cash or if the value of the car has depreciated more than the residual value anticipated by the dealership

Financing Your Lease Buyout

A Lease Buyout Loan is designed to accommodate those who wish to buy out their lease by providing the financing required to purchase the vehicle from the leasing company. This loan is then payable in monthly payments like any car loan. Some potential benefits of a lease buyout loan include:

  • Avoiding a large payout on the vehicle
  • Paying and investing towards an asset that you will own in full at the end of the loan
  • Having potential equity in your vehicle that could be used for a future purchase

Ask your dealership or leasing company if they deal with lenders to assist their existing customer base or find a lender who offers loans for this purpose. Compare offers from different lenders and research your options before deciding on the route to take.

Credit history plays a large role in obtaining a loan if you choose to finance the buyout of your lease. Obtaining copies of your credit report and understanding your credit standing is important before you apply for a loan. The better your credit, the more likely you will qualify for a better rate.

Balancing the Pros and Cons of a Lease Buyout

In addition to assessing the market value, lease buyouts may be a good option if the car is in good shape and still within its manufacturer’s warranty period. Furthermore, if you have a high mileage penalty, think about the impact of that cost. For instance, in Lisa's example, if her mileage cap came in at $3,000, she would have to pay that amount at the end of the lease period and still go through the motions of a new lease if leases a new car. A lease buyout may be a better option in this instance.

Deciding To Buy Your Leased Car

Buying a leased vehicle is a decision that largely depends on your knowledge of the car and whether it will suit your needs better than another option would. It’s also important to take stock of your personal finances, as it will determine whether buying out your lease meets your personal needs. Assess your personal needs or speak with a financial professional to decide the right decision for you.

By being informed of the lease stipulations and options for buying out your lease, you may find yourself in a great position to make the right choice.