Top factors to consider in a lease buyout
Leasing a car is a popular option if you want to drive a new, sometimes luxury, vehicle without the long-term commitment of ownership.
However, as the lease term comes to an end, you’ll have a decision to make; Should you return the car and lease a new one, or is it smarter to buy out the lease? Let's take a look at a few factors that could influence your decision.
Market value vs. estimated value
Vehicle value is one of the primary factors in the decision to buy a leased car. This includes the market value of the car at the end of your lease and the residual value (also called the buyout price) set at the beginning of your lease.
The market value is determined by the current market considering the mileage and the condition of the car. Try out online tools like Kelly Blue Book or Edmunds to get an idea of your vehicle’s current value. You’ll input the make, model and year followed by details about the history and condition of your car. Be honest to get the most accurate value.
The residual value, a number set by your leasing company, is the anticipated value of your vehicle at the end of your lease. This value assumes that you will drive all the miles set in your contract and you will return the car in good condition.
In some situations, the market value of your car could be higher than the residual value. This could be because you didn’t drive your allotted miles, or you took great care of the vehicle. A well-maintained car with low mileage tends to be worth more. If there’s high demand for used cars, that could also drive up prices.
If the market value of the car is greater than the buyout price, you may consider making the purchase. It’ll be like buying with a discount!
Mileage limits
Lease agreements come with mileage restrictions and fees for exceeding the limit. A standard lease contract typically covers three years and 36,000 miles. Each additional mile incurs a fee, ranging from $.15 to $.25 per extra mile.
If you know you’ll exceed the mileage limit, it may be smart to buy the car to avoid hefty mileage fees.
End-of-term fees
When you return a leased car, there may be end-of-term fees, like a surcharge for excess wear or tear or a disposition fee. A disposition fee, anywhere from $350 to $500, is charged by the leasing company to prepare the car for resale. Additionally, your leasing company may charge a purchase option fee if you decide to buy the car. That’s another $350.
Review your contract thoroughly to understand the fee structure before moving forward with a buyout.
Emotional value
Sometimes, the decision to buy out a lease is not purely financial. Emotional attachment to a particular vehicle can play a significant role. If you’ve developed a strong connection and comfort with your leased car, the sentimental value might outweigh potential savings from leasing a new vehicle. In such cases, buying out the lease ensures you continue enjoying a vehicle you’ve come to love.
Leasing a car can be cost-effective and gives you the short-term benefit of driving a new vehicle. For longer-term transportation and stability, owning a car may be the right option for you. By evaluating the market and residual value, mileage, maintenance history, and your emotional attachment, you can feel confident deciding if you should move forward with a lease buyout.
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