Is the car you are currently using under a lease contract? Perhaps, you chose to lease it is because you did not have enough cash to purchase a car, or you’re a new driver who wanted to master your driving without the financial burden of a car owner. But, here you are almost over your lease contract.
There are probably two things on your mind. Get a car loan to finally own a car or lease out another for another three or more years.
What if you’ve grown attached to the car you have been driving for years now? Good for you, you have the option to buy it from your lessor. What’s better is you’ll save a lot more than if you buy a brand new car. This arrangement is called a lease buyout. But, just before you bite the bullet, consider these things first:
Before Expressing Your Buyout Intent
Sometimes, it’s best to wait it out until the lessor reminds you that there are 90 days left of your lease contract. You can gain an upper hand in the price negotiation when you don’t immediately express your intention of buying the car. You can also use the remaining time left of your contract to weigh out the pros and cons of eventually owning the car.
What’s the car’s current market value?
There are two ways your leased car’s value could be assessed. One is its retail value which is the amount you would pay if you purchased the car from a dealer. The other is its wholesale value which is the amount a dealer would pay if he purchased the car from an auction.
Inquire from different dealers or be guided by car-oriented online resources. With the prices you have accumulated, compute an estimate you would go for when declaring an offer to your car lessor. The worst that could happen is your lessor rejecting the offer because of a big discrepancy between your estimate and the amount they demand. In that case, you may want to think your decision through.
Check the wellness of the car’s parts and assess how well it meets your needs. Aside from its functionality, check for non-mechanical damages, scratches or dents on the car’s body and windows, dirt on the seats, dashboard, and the car floor for instance. After all, your decision is still partly based on the vehicle’s aesthetic value and how much cleaning and remodeling it requires.
How will you finance the purchase?
If you have the negotiated amount on hand, then that’s great. But, this is rarely the case for many. You can still finance this car purchase through a title loan, for instance. You can make it favorable on your end by stretching the loan across a short timeline only, knowing the car’s depreciated value. Otherwise, you will only unnecessarily rack up interest payments and end up paying more for what the car is worth.
You can shop for the cheapest loans in the market, but nothing beats the discounts you can get from having a good credit score. If you have a track record of paying beyond credit payment due dates, which pulls your credit score down, you cannot expect lenders to give you affordable deals for the risks they’re willingly taking on your behalf. In some cases, you could have a low credit score due to erroneous entries on your credit report which you could have corrected before applying for any loan.
When will you start paying for the car?
Timing your payments matters to help you save on additional fees. If you start paying for the purchase while the lease contract period isn’t up yet, you might incur additional charges. To help counter this, make sure your lessor understands that the interest you’re paying in the remaining duration of the contract does not signify your intent to prematurely cut the contract, instead, it is to pursue a lease buyout.
One more crucial detail you need to look out for is the mileage you have added to the vehicle since leasing it. Lessors usually stipulate a mileage limit on contracts and the lessee is required to pay an additional fee for every exceeding mile. Depending on the lessor, they could waive the charges if you decide to buy the car.
Still, waiting for the contract to end before purchasing it could be the best course of action. When there is little time left of their car’s lease contract, they would want to find their next lessee or buyer ASAP. They also know that it’s advantageous for them not having to look for their next client if you are going to buy it.
Just like investing in any big-ticket items, buying a car out of a lease requires assessment. Your decision must be based more on financial logic, on the prevailing market prices, and your capacity to pay. Likewise, the decision must be less based on emotion, how much you like the car, and without much regard to how long it could still hold out given its age and wear-and-tear.
Meta title: Navigating the Lease Buyout Process
meta desc: Is your car lease about to end? Perhaps, buying it crossed your mind but you aren’t sure if it’s the best choice. Find out how you can decide considering your financial circumstances.