You Don’t Have to Wait Until the End of Your Contract to Buy Out Your Car Lease
Car leasing has surged in popularity over the past two years, and most lessees will drive their leased vehicles until the end of the contract (typically 36 months) and return it to their dealer. But a three-year car lease is not set in stone.
Early Termination vs. Lease buyout
There are at least two primary ways to get out of a car lease early.
One common way to get out of your car lease early is what is called an early termination. An early termination happens when the lessee returns the vehicle to the lessor before their contract is up. This can be very expensive because the lessor may charge an early termination fee and will often seek to collect remaining payments as well as any negative equity.
On the other hand, car lease buyouts are often a better option for most lessors. Lease buyouts are typically executed when the lessee decides they want to own and drive the vehicle beyond the term of the lease contract. They may even wish to sell it to someone else for a profit.
Most buyouts occur at the end of the car lease. The dealer will typically broach the subject at turn-in or shortly before, and the lessee can choose to accept their offer, decline it or negotiate a better price.
What to consider when you buy out your Car Lease Before Your Contract Ends
1. Consider Your Equity: If you have leased a vehicle and think you may want to keep it, you don’t have to wait until the end of the contract to negotiate a buyout. If your vehicle has retained its value and you have some equity built up, purchasing it even sooner means you can take advantage of that equity. However, the opposite can also be true, as well, if you are “upside down” in your car.
2. Residual Value Is Subjective: There is also the matter of what is called the residual value. When you signed your car lease, you agreed to a predetermined amount — a guess, really — that the car would be worth at the end of the lease term. In the event of a buyout, some lessors will wish to renegotiate that value; others will not. It is important to know what your lessor’s policy is before you look at the buyout options.
3. Depreciation and Lease Agreements: On top of the residual value, you will also likely be held responsible for whatever the agreed-upon amount is left in the car lease itself. Again, depending on the vehicle and how much (or how little) it has depreciated, this combined amount could favor you or your lessor.
4. Extra Charges: One other aspect of a lease buyout to keep in mind is that the amount you would finance to buy out a lease is not necessarily just the residual and the contract amount added together. The lessor will likely apply some, if not most, of your past lease payments to finance charges, so your balance could be considerably higher than you may have thought.
5. Wear and Tear Still Applies: There is a widely held belief that lease buyouts are a good way to avoid costs associated with turn-in, including excess mileage or wear-and-tear. That may be true, but you still have to end the lease to buy the vehicle, so you may have to pay those fees to bring the vehicle up to “sellable” condition before you can finance the purchase — just as you would if your car dealer was going to sell it to someone else. Some lessors do not require inspections and reconditioning fees, however, so consult your lease contract.
If the numbers make sense, and your lease company contract is written to make it easy for you to move forward, then the lease buyout process will be similar to other car purchases with a few extra hurdles. In many cases, you can finance your lease buyout with the company that handled your lease or with a bank or credit union. You can also finance through a company like Innovative Funding Services (IFS) that will help you navigate the sometimes complicated process.
An early buyout on a car lease can make a lot of financial sense. If you love your leased vehicle and see yourself driving it for years to come, or you believe you can buy and sell it for a profit, an early buyout can be a great deal.
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