Should You Consider Buying Out Your Leased Car in the Current Auto Market?

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When your car lease is up, you typically have two options: Return it or keep it. Many contracts add provisions that state you can buy the vehicle at a price set before you even sign the lease. According to Consumer Reports, the buyout price could be lower than its market value. Plus, you might have some equity in your vehicle.

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While it’s normally not the best idea, used and new cars are in short supply and prices have skyrocketed. Used car prices reached a record average high in January and, although prices have dipped slightly, they are still up 48% from August 2019, CNN reported. The average sale price of used cars stood at $28,657 in the three months ending in August — up 9.6% from last year.

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“There was no way for the folks that drew up leasing contracts a few years ago to know that those cars would be valued so high today,” said Jake Fisher, senior director of Consumer Reports’ Auto Test Center. “That means they likely already agreed to sell you a car for far less than what it’s worth today.”

Nick Woolard, an analyst at TrueCar, told Consumer Reports that there is a strong correlation between buyouts and used prices. When used car prices are down, more consumers let the dealerships keep the vehicles. However, because high demand and chip shortages are pushing up car prices, buyouts may be better deals.

While almost all leases have buyout clauses, TrueCar pointed out that the rate of depreciation is precalculated, so the leasing company can’t change the buyout price based on current market conditions. This is giving you the option to either buy out the lease and have a car for much less than you would pay for the same model from a dealership or a private seller, or you could buy out the lease and sell the car.

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In the end, your best option depends on your situation.

When It Might Be Better To Buy Out Your Lease

Because car prices are so high, it might be more affordable to buy out your lease than to trade in your car.

“Buying a new car or getting a new car lease right now may cause you sticker shock,” said Michael Ryan, a financial coach and founder of MichaelRyanMoney.com. “It may be less expensive for you to purchase your car off lease at the predetermined buyout price from your contract. Additionally, if you have a high mileage lease or are looking to lease a luxury car, it may be cheaper in the long run to buy the car you are leasing.”

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The car itself also factors into this decision.

“If you’re happy with your current car and it’s in good condition, there’s no need to get a new one,” Ryan said.

Buying also can save you from having to pay any fees you may owe when you trade in the vehicle, which is another way this move can potentially save you money.

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“[There may be] fees the lessees were unaware of when they signed their lease,” said Zander Cook, COO and co-founder of Lease End, a tech company that helps people manage car leases. “Fees, including disposition and mileage fees, may be avoided if the lessee decides to buy out their vehicle. Every lease has a mileage amount built into it and, if a leaseholder is over the mileage, generally you’ll get charged 25 cents a mile. When and if you are over on mileage is another great time to consider purchasing a lease.”

Damian Serwin, investment banking analyst and co-founder of Why Budgeting, recommends thinking of leasing versus buying a car as renting versus buying a home: If you can afford to buy, this is usually the better decision.

“By the time your lease has finished, depreciation has already kicked in and taken off a big chunk of the value,” he said. “If you go for another lease, whatever you paid into your current lease will disappear — just like when you pay rent. With the final buyout option, you can think of it as an option to convert this into a mortgage.”

When It Might Be Better To Trade It In

Transitioning from a lease to owning your car does come with some added costs that you should consider, so buying out your lease might not be the best option for your financial situation.

“The first thing to consider when buying your car off lease is that it most likely will no longer have a warranty,” Ryan said. “There are many maintenance expenses that all come due right around the three- to four-year mark for a car, so factor all of those into your buying decision — very few people think about this.”

It’s also possible that your monthly car payments will go up, depending on the terms of your auto loan.

“Consider your financial situation and whether you can afford the monthly payments,” Ryan said. “If you’re not sure, it’s always a good idea to speak with a financial advisor.”

Depending on the car you have and the cars you are considering, it might still be more affordable overall to trade your vehicle in for a new one. Ryan recommends asking yourself the following questions:

  • How much would it cost to maintain a new car?
  • How much would you save in fuel costs with a new car?
  • How much would you save in insurance costs with a new car?

“All of these factors will play a role in deciding whether or not it’s a better decision to buy [or lease] a new car,” he said.

You also need to consider the buyout price and whether it’s worth the cost.

“You should not purchase your lease if its market value is less than the buyout price,” said Matas Buzelis, an auto expert with carVertical. “In essence, you would be overpaying for a used car.”

Another reason it wouldn’t make sense to buy your leased car is if you have already been having mechanical problems with it.

“If you come across any issues with the car you currently have, it may be a better option to look for a new car,” said Moshe Pourad, CEO and co-founder of 26 Motors, a pre-owned car dealership in New York.

It also wouldn’t make sense to buy your lease if the car no longer fits your needs.

For example, “a Mustang is great when you [are] single; it’s not so practical if you’re starting a family,” said Scott Kunes, COO at Kunes Auto Group. “And if all the kids are grown, it’s probably a good time to let that minivan go.”

Make sure to do the math and see what’s available before making a decision — buying out the lease may not be the cheaper option depending on the offer you can get from the dealership.

“Leasing may be cheaper in some areas of the country than buying outright,” said Jon Callahan, founder and CEO of Jalopy Talk, a website dedicated to cars, trucks, SUVs and motorcycles. “Additionally, special deals or cash-back offers are often available to help you save money.”

Josephine Nesbit contributed to the reporting for this article.

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About the Author

Gabrielle joined GOBankingRates in 2017 and brings with her a decade of experience in the journalism industry. Before joining the team, she was a staff writer-reporter for People Magazine and People.com. Her work has also appeared on E! Online, Us Weekly, Patch, Sweety High and Discover Los Angeles, and she has been featured on “Good Morning America” as a celebrity news expert. 
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