Why Now Might be a Good Time to Buy Your Leased Car
With supercharged car prices driving auto loan prices into the red, is now the right time to buy out a lease on your car? Let’s take a look at what buying out a lease involves and whether changing lanes from leasing to owning makes sense right now.
HOW DOES A CAR LEASE WORK?
When you lease a car, you pay a dealership for the right to use a car for a set period, typically between two and four years. You pay for the cost of the car’s expected depreciation, plus a rent charge and other fees.
Payments may be typically lower on leases but, unlike an auto loan, the dealership will take the leased car back at the end of the lease period and you won’t owe—or own—anything.
Pros of Leasing a Car
Leasing is often attractive because:
- You pay less over the short term
- You get to drive a brand new model
- Many maintenance costs are included
- You can lease new cars repeatedly
Cons of Leasing a Car
The downsides of leasing include:
- You pay for a depreciating asset without owning it
- You may pay penalties for excessive mileage and wear and tear
- You may be paying too much for a low-mileage vehicle
- At the end of the lease, you have no car
WHAT IS A LEASE BUYOUT?
A lease buyout gives you the option to buy the vehicle at the end of the lease at a price set at the beginning of the contract. The set price represents the car’s residual value. It’s an easy way for the dealership to dispose of what is now a used vehicle. For you, it can be a good way to own a car you know at a reasonable price.
With an early lease buyout, you agree to take ownership of a vehicle before the end of the lease at a negotiated price based on how much of your lease remains and the expected rate of depreciation of the car. In some cases, your contract might also include early termination fees.
Pros of a Lease Buyout
Advantages of an early lease buyout include:
- You avoid your remaining lease payments
- You may avoid penalties for wear and tear and excessive mileage on your car
- You now own your car!
Cons of a Lease Buyout
Disadvantages of an early lease buyout can include:
- You will still pay more than the residual value for the car
- You may have to pay an early buyout penalty
- You will need to pay in full or find auto financing
WHY DOES BUYING OUT A LEASE MAKE SENSE NOW?
Buying out a lease starts to make sense when the market value of your car remains higher than the buyout price set in your lease contract.
A protracted shortage of auto computer chips has slowed new car manufacturing worldwide, sending used car prices up 37% in the last year. That means your leased car is likely worth significantly more now than the residual value the dealer calculated even a year ago.
At the same time, high inflation and increasing interest rates are also making commercial auto loans more expensive, and things are likely to stay that way, even if used car prices do come down. It’s a good time to avoid buying a new or used car.
As a result, buying out your leased car now might make sense, even if you need to pay early termination fees to the dealership.
Buying your leased car now could allow you to:
- Own a car you already know and love at a great price
- Lock in the value of a low-mileage vehicle
- Avoid paying for high mileage or wear and tear
- Give you the option to sell it at market price and pocket the difference
HOW DO YOU FINANCE A LEASE BUYOUT?
You are likely going to need to find financing to help you buy out your vehicle. The good news is you may be able to avoid the sky-high prices and punishing terms of commercial auto loans.
While several lenders offer special lease buyout loans, the annual percentage rate (APR) on these deals can sometimes be higher than on a new car deal. It pays to shop around, especially if you don’t have a superb financial background or excellent credit.
In many cases, talking to a credit union like Red River Credit Union (RRCU) can help.
BUYING OUT A LEASE WITH THE RRCU ADVANTAGE
At RRCU, our members are also our owners. Your bottom line is our bottom line. That means when you apply for an auto or other loan with us, we review it personally, taking your full financial background into account.
As a result, we can offer our members:
- Fantastic rates on auto loans*
- More lenient qualifications than many larger lenders
- Flexible options on different types of car purchases
- Our personalized member service
Talk to us about getting the most out of your auto buyback deal. Click below to find out more!
HOW AUTO LOANS FROM CREDIT UNIONS WORK
*Rate and term based on credit score and year model (auto). Rate subject to change without notice. With Approved Credit.