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People who lease their cars typically do so because they like the idea of driving new cars every three to four years. But sometimes they become attached to their leased car or they decide they want a car they can call their own. They have the option of buying the car at the end of the lease, but is that such a good idea?
Lease contracts can be complicated to begin with, and there can be a few surprises in them when it comes to buying out a lease. You can obtain a lease buyout loan to purchase it, and if you really like the car it can turn out to be a great purchase decision, but you should proceed with caution.
How a Lease Buyout Loan Works
A lease buyout auto loan allows you to purchase your leased vehicle at the end of a lease. It’s not very different than obtaining a used or late model car loan. The tricky part is determining whether you can get a fair market value for the car, which is dictated in large part by the residual value stated in the lease agreement. That can be a fair deal, but there are other factors to consider before setting it as your purchase price.
The first thing to consider is what you would pay for the same car in the same condition from a dealer. You shouldn’t pay more than what you would pay for the exact same vehicle at a dealer. In fact, you should pay less because a dealer has to spend time and money to get the car sale-ready. You also need to account for vehicle transfer fees and sales tax. You may also be required to pay a purchase option fee of $300 to $600. If the estimated residual value and sum of the additional costs work out to be less than what dealers are asking, you’ve got yourself a good deal.
If you are considering an early buyout, well before the lease-end date, it may be more difficult to arrive at a fair price, especially if your car has been depreciating at a faster rate than projected. You would have to rely on the leasing dealership to calculate the price, and you may not like what you hear. It is usually better to wait until you’re at or near the end of the lease to consider buying out a lease.
The Benefits of Knowing What You Are Buying
The big advantage of buying a leased car is you know exactly what you are getting. If you have taken good care of the car, you have a better assurance of its quality and potential than if you were to buy a used car somewhere else. If you managed to ding the car up a bit or you exceeded the mileage limit, you won’t have to worry about coming up with the fees to cover the additional costs. You also spare yourself the time and hassle of shopping for a car. In fact, it’s possible to go from lessee to owner without having to leave your house.
Negotiating the Best Deal
Once you have researched the car’s fair market price (what you expect to pay for it), you can start shopping around for a lease buyout loan. All you are really doing is looking for a refinance loan. You want to shop and compare loan pricing in preparation for the call you will eventually get from your lease dealer.
By the way, never call the lease dealer to ask about purchase options. You can count on the fact that the lease dealer will call you and that puts you in a better negotiating position. If you have some preapproved loan offers, your lease dealer will have to beat the best deal. Look for purchase incentives or discount financing. At the very least, you should able to get the purchase option fee waived.
Getting a Lease Buyout Loan
To qualify for the best lease buyout loan you should have very good credit with a perfect payment record on your leased car. You will need the typical documentation required with any auto loan application, including the car’s VIN and odometer reading. If you are shopping your loan with lenders, you will also need to provide a copy of the lease containing the residual value.
You can also do your loan shopping online. There are several online lenders that offer lease buyout financing. You can also use loan shopping where you can submit one application and then receive up to four loan offers within minutes.
Buying your leased car can be a tricky proposition because there are a lot of factors to consider – residual value, contract fees, and financing. The good news is, if after all of your research and number crunching the deal doesn’t make sense, you can simply turn your car in and go get a better deal on another car elsewhere.
Author: Jeff Gitlen