Leasing is a great way to save money, but sometimes even the least emotional drivers want to capture their emotions and calm down.
If this is you, you may want to consider purchasing a lease. Especially if you have low mileage and want a new car without making high monthly payments.
But imagine you got a great deal on a lease and the residual value was lower than you expected. Leasing allows you to avoid being stuck in a car until you figure out what works for your lifestyle.
Here's how to determine if a lease buyout is financially right for you.
When should I lease before buying?
If you're ready to drive your car for a long time, it's a good idea to buy out your lease instead of signing a new one. If you want to reduce your down payment before financing a car, leasing with the intent to buy may be a good option.
This is not the right choice for the type of driver who always needs the latest model.
To decide whether to lease or buy, add the total cost of a car's lease, including any upfront payments, to the car's estimated residual value at the end of the lease.
Then compare that number to the car's sales price plus any fees, and factor in the term of your car loan. Look at which number is smaller.
In some cases, leasing and then buying can be more expensive than buying outright. This is especially true if you exceed the dealer's mileage limit or if the residual value at the end of the lease is much higher than expected.
But imagine you got a great deal on a lease and the residual value was lower than you expected. Leasing allows you to avoid being stuck in a car until you figure out what works for your lifestyle.
Before choosing a potential lease make and model, weigh your normal driving habits.
How long do you want to drive?
If you want to buy or lease a newer model within two years, it doesn't make sense to lease and then buy the vehicle. It's difficult to know whether a car's residual value will increase or decrease during the lease term.
However, if your car's value has declined and you decide to keep it for a short period of time, you'll likely end up owing more than the car is worth, and you'll have to pay out of pocket to replace it.
How many miles do you typically drive per year?
Leases have annual mileage limits. Usually 10,000, 12,000, or 15,000 miles. If you exceed these limits, you may be able to save on excess mileage charges by purchasing the vehicle after leasing. However, make sure those fees exceed the price you pay for the vehicle.
Can you really save money?
Compare monthly payments and lease costs for a new car. Also, consider the following:
- purchase price
- Security deposit
- Acquisition fee
- Document preparation fee
If you're paying more to buy while you're leasing, it may be wiser to buy out the vehicle instead of leasing first.
How to purchase a car lease
1. Weigh your financing options
Get at least three different car loan interest rates before you commit to buying or leasing a car. The more offers you have in front of you, the more likely you are to receive a good deal.
It can also help you determine whether over time it will be more affordable to lease another car or buy your old one. To take advantage of a lease buyout loan, you need to approach it by securing a traditional loan.
Consider having your vehicle inspected before you make a purchase decision. Depending on the length of your lease contract, you may be able to receive necessary repairs at a lower cost within the factory warranty period. You shouldn't buy a car if it's in poor condition, but be prepared to cover excessive wear and tear with the fees charged by the dealer.
2. Negotiate the price
Companies often have no-negotiation rules on the purchase price of lease acquisitions, leaving little opportunity for haggling. Still, there's nothing wrong with bringing up this topic. Ask the seller to consider some concessions, such as:
- Purchase option fee waiver
- Providing purchase benefits
- discount financing
Experts cite purchase option fees as an issue that many sellers are actively trying to opt out of.
3. Weigh costs
Proceed only if there is a significant benefit in both lease cost and payoff amount. Skip leasing if it's cheaper to pay up front for the car or if you plan to use the car for a long time. Buy the car directly instead.
