Once your car lease is up, you have to decide whether you want to buy the car outright or return it and look for a different vehicle. The former option is called a lease buyout.
If you’re wondering whether a lease buyout is the right option for you and your vehicle, Gravity Lending has the answers.
What Is a Lease Buyout?
Some vehicle lease agreements come with a buyout option in the contract. This option allows you to purchase the leased car outright, either before your lease terminates or upon its conclusion. While lease buyout does not force you to buy the vehicle, it’s a good option for those who do not want to go shopping for another car at the end of their lease.
How Much Does a Lease Buyout Cost?
The cost of the vehicle when your lease is up is based on a few factors. This price, called the residual value, is calculated before you even sign your lease agreement. This is your vehicle’s predicted value at the end of the lease. While this will be lower than the price of the car when you began the lease, you still may have a sizeable payment at the end, depending on the length of your lease.
Why You Should Consider a Lease Buyout
In some situations, a lease buyout can make sense for a customer. If you’re thinking about buying your vehicle when your lease is up, you might want to consider the following factors.
Taking Advantage of the Current Value of the Vehicle
When you lease a vehicle, you’re paying for its expected depreciation. In other words, your lease payments are compensating the owner for the car’s decline in value over time.
At the end of your lease, there is a chance that your vehicle might be overvalued, meaning after you deduct your lease payments, the remaining balance on the car is higher than its value. In that case, you might be better off looking for a different vehicle instead of buying it out. This way, you can upgrade to a different vehicle with cash or financing that matches the price of the car’s current value.
If the predicted value of your vehicle is less than its current value, however, it might be beneficial to purchase the car outright. Doing so can get you a great deal on a car that you are unlikely to find anywhere else at that price, especially if you can afford the auto loan payments to finance the purchase.
Avoiding Penalties for Excessive Use
Many lease agreements will have stipulations built into them that require customers to pay additional fees based on mileage and damage to the vehicle. A lease agreement will have an annual mile limit, and if you exceed this number of miles, you’ll have to pay an agreed-upon amount per additional mile that you travel. Any unusual wear or damage on your vehicle during the lease will also require fees to be paid.
If you’re worried about facing an abundance of fees at the end of your lease, purchasing the vehicle before your lease ends (and before you rack up any more penalty payments) might be the best choice.
Exploring Lease Buyouts with Gravity Lending
Lease buyouts can be very beneficial, but their practicality largely depends on your lifestyle and financial situation.
Gravity Lending helps customers find the lowest cost loans for their auto refinance, and we provide expert advice to customers looking to grab life by the payments. Contact us today to learn more.