Tag: car lease

Should I Buy Out My Lease?

by Advantage One, posted in Announcements, Budgeting, Convenience, Credit, Debit, Lifestyle, Loans, News & Events, Reviews, Saving, Tips & Best Practices, Uncategorized

Q: My lease agreement is nearing its end, and I’m getting many offers to buy out my lease due to the current state of the economy. Should I ignore the hype, or is it really a good idea to buy out my lease?

A: With cars in hot demand, and selling at all-time high prices, many lease customers are looking at trade-in values for their vehicles with the intention of buying out their lease. While this can be a smart choice for many consumers, it’s important to consider all relevant factors before making a decision. Here’s what you need to know about buying out your lease.

What is a lease buyout?

Many drivers are confused by the offers they’re getting and the promotions they’ve seen for buying out leases. How is it possible to buy a lease when a leased vehicle, by definition, is essentially a rented car?

First, buying out a lease involves paying the car’s “buyout price” as specified in the lease contract, which makes you the car’s new owner. Second, it’s important to establish that buying out a lease generally makes the most sense when you are nearing the end of your lease term.   Finally, this may necessitate taking out an auto loan to afford the buyout price, just like you might do when purchasing a new or used car at a dealership.  

How can I determine my car’s buyout price?

To estimate how much you’d need to pay to buy your leased car, look for the term “residual value” in your lease contract. This tells you what your leased vehicle is expected to be worth at the end of the term, which may be months or years away. To reach your vehicle’s buyout price, add the residual value to any remaining payments. For example, if your car’s residual value is $25,000 and you owe another 10 payments of $500, the car’s buyout price is $30,000. Of course, the more time left on your lease, the higher price you can expect to pay to buyout.

Will I need to pay any fees in addition to the buyout price?

Depending on your home state, your vehicle’s buyout price may be subject to an auto sales tax. Your lender may also charge additional fees, such as a ‘purchase option fee’. It’s important to know about any additional fees you may need to pay in addition to the buyout price and to 

estimate the total you’ll be paying before deciding to purchase a leased car.

The good news is that you won’t be accountable for the typical lease-end fees, which can include the costs of reconditioning the vehicle for resale, fixing any damage the car may have incurred during your term, and an over-mileage penalty for every mile you may have driven over the official limit.  

What are the advantages of buying out a lease?

Many drivers are opting to buy their leased vehicles now due to the current state of the auto industry. Supply is low and both new and used cars are in high demand. A driver nearing the end of their lease agreement may find it challenging to purchase or lease another car. Buying a car you already lease will give you first dibs at a hot commodity.  

Some drivers are choosing to capitalize on the high demand for used cars by buying out their leases and then flipping the car to a dealership or selling it privately to a new owner. They assume they will earn enough from the sale to help offset the price of a new car. While this may be true, it’s important to remember that it may be difficult to find a new car in a desired model and at an affordable price.

Before taking out a loan to buy out a lease, find out what your car is actually worth. Due to the state of the market, it’s likely worth more than you’ll pay. However, if it’s worth less than the buyout price, you’ll be upside-down on your loan, which is never a good idea. In addition, you may find it difficult to qualify for a loan in an amount that is higher than the value of the asset.  

How do I buy out my lease?

If you decide to go ahead and buy out your lease, you’ll first need to run the numbers as described above to be sure it’s a financially responsible decision. When you have the total buyout price, your next step is to work on financing. You can choose to take out an auto loan or a personal loan to help cover the costs. 

Next, you’ll contact the company behind your lease and complete the purchase. The sale process will be similar to the sale of any car. Finally, be sure to notify your insurance company about the change in ownership of your vehicle. Leases generally require plans with low deductibles and high premiums, so you may want to choose a new plan with higher deductibles and lower monthly premiums.

If you’re looking to finance an auto loan for a lease buyout car, look no further than Advantage One Credit Union! Our auto loans offer low interest rates [see for current rates], easy payback terms and a quick approval process. Call, click or stop by to get started or discuss available options!

Your Turn: Have you bought your leased car? Tell us about your experience in the comments. 

Questions to Ask Before Leasing a Car

by Advantage One, posted in Tips & Best Practices

10 answers you need before signing for a lease

For some, leasing a vehicle isCarLease_070516 a better option than buying. Before deciding to go forward with a lease, consider looking into the following topics.

Before choosing a vehicle…

Lease specials:
According to Edmunds.com’s Director of Remarketing Joe Spina, automakers often offer highly discounted lease specials on slow-selling models in order to try to boost interest. When you walk into the dealership, make sure to ask the salesperson about any of these possible offers. However, the quote given will not always be the final price. See below for more information.

Once you have a specific vehicle in mind…
Fees:
The first thing you will want to ask after expressing interest in the lease specials is what the vehicle’s “drive-off” fee is. Drive-off fees are a combination of the down payment and additional fees. Of course, you want to pay as little as possible upfront; however, that means a higher monthly payment. Other fees include acquisition and disposition fees, which unfortunately cannot be negotiated, but the security deposit can be waived. No matter the fee, it never hurts to question the dealer.

Down payment:
Bankrate.com states that your down payment can consist of many things, and as mentioned above, some may be negotiable.

“It can be made up of payments [for such things as] the security deposit, title fees, capitalized cost reduction, monthly payments paid at signing and registration fees,” the website explains.

Interest rate:
Another negotiable aspect is what people in the industry call the “money factor.”

“The dealer converts the interest rate into a mysterious-looking decimal number. To convert the money factor back into an interest rate, multiply by 2,400. So if the money factor is 0.00125, multiply it by 2,400 to get 3 percent,” explains Senior Consumer Advice Editor of Edmunds.com Philip Reed.

Always ensure your money factor/interest rate is parallel to what you deserve for your corresponding credit score.

Residual value:
This is the amount the car will be worth at the end of the lease. You will want one that holds its value — that is, it has a high residual value. The figure is an estimate set by the leasing company, and you can always ask the dealer what it is.

Lease term:
Most terms are 24, 36, 48 or 60 months, but there are odd terms put out there designed to confuse you.

“A 39-month lease based on the 36-month residual value of the car will give you lower payments, but you’ll pay more overall,” offers Reed as an example. “And you might be driving for three months without a factory warranty, so a major breakdown could cost you big-time in repairs.”

Miles included:
The industry standard for a lease is 12,000 per year. So if you hear of a deal that sounds great but includes only 10,000 miles, it is obviously too good to be true.

Gap insurance:
You will definitely want to know this cost in the event of an accident — or any damage at all, including a mileage overage — before you return the lease vehicle.

“This insurance will pay the difference between what you owe on your leased vehicle and what it is worth if it is wrecked or stolen. You can get it with the lease or ask your insurance company,” Bankrate.com states.

Regarding the lease’s end…

Lease transfer:
Given today’s consumerism, flexibility is key, which is why car shoppers want to be able to change vehicles more often, even when under a lease contract. You may want to ask ahead of time if you will be able to transfer the lease to another person for the remainder of the term. Some dealers may not know the answer offhand, but leasing companies will, so it’s a good idea to ask beforehand so you know all of your options.

Open vs. closed-ended:
Most leases are closed-ended, meaning you return the car at the end of the lease, pay any costs due or buy the car at its residual value.

“If the car is not worth the residual value figure at that point, you’re not responsible as long as the car has normal wear and you haven’t exceeded the mileage limits,” Bankrate.com states.

Less common is the open-ended lease. If at the end of the term, the car is not worth the estimated residual value — as usually decided by an outside party assigned by the dealer — you pay the difference. This could lead to some unwanted hassles, but you should be fine as long as you read and agreed to all the fine print in your lease contract.

Once you obtain all the answers to these questions, you should be able to ascertain whether the deal will provide you with a better overall experience than buying a vehicle would.

Used with Permission. Published by IMN Bank Adviser Includes copyrighted material of IMakeNews, Inc. and its suppliers.