If you leased a car in pre-pandemic times and you’re just a few months shy of the last payment, start here before you decide if a lease buyback makes sense or if you should turn in the keys.
According to Brian Moody, executive editor of Autotrader, you’re in the best possible spot in this challenging environment for buying cars.
Here’s what you need to know.
Check your lease buyout agreement
Ask your lessor to see what you would need to pay to buy the car out of its lease terms now. This information is usually easy to find online by logging into the account where you make your monthly payments. However, making a phone call to the lessor can also be helpful.
When checking, ask about any associated fees or an early termination charge. Contact the lessor directly to determine exactly what you will owe if you have any doubts.
What about lease buyouts on Teslas?
As of April 15, 2022, Tesla
ended the option of lease buyouts at the end of the term. If you leased a Tesla prior to that date, you can still purchase your vehicle using the agreed-upon buyout amount. For those who leased vehicles after April 13, 2019, a purchase fee of $350 applies.
Tesla’s website says, “All Tesla vehicles delivered on or after April 15, 2022, are not eligible for purchase. It also says, “Third-party dealerships and third-party individuals are not eligible to purchase leased vehicles.”
Research the value of your vehicle
Armed with that information, you can use the car valuation tool at Kelley Blue Book to find the approximate value of your leased vehicle. You’ll want to note your car’s current mileage, plus you should be aware of any significant optional equipment the car offers. If you’ve kept the original window sticker that came with the vehicle, this can be useful.
Now, the math is simple: is your car worth more than the buyout? If so, it may make a lot of sense to buy it.
For instance: if the buyout value is $25,000, but the car now shows a trade-in value of $30,000, you would be $5,000 ahead.
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When should I buy out my lease?
Lessees should consider buying out their lease in a few circumstances, Moody said.
“First, if the buyout price is at or below market value. Most leased cars usually have low to moderate miles and have been well cared for,” he said.
If you’ve got a good car — one that you like and have kept maintained — it might be a vehicle you can see yourself driving for another year or more.
You may have heard that used car values are the highest they’ve ever been. Beginning in mid-2021, used car values rose rapidly due to limited new cars on dealership lots. According to a Cox Automotive analysis, by the end of 2021, average listing prices topped $27,000 for the first time.
“Consider buying your leased car if simply returning it will result in paying more for the car you’ll get to replace it,” Moody said.
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When to avoid a lease buyout
If the math doesn’t work in your favor, it may be best to turn in the keys and walk away from the leased car.
A more complex decision might involve looking at the car’s reliability history. A manufacturer’s warranty likely covered your leased car, but that may not extend much — if at all — beyond the end of the lease.
“You might be inheriting problems that you now have to pay to fix along with your monthly car payment,” Moody said.
You may want to turn in the car if it has had frequent mechanical or electrical problems or if you were involved in an accident that resulted in major damage repairs that could affect your vehicle’s long-term value.
Can I immediately sell my car after I buy out the lease?
Some drivers may see dollar signs when they find out their leased car is worth thousands more than the lease buyback price.
However, you’ll want to do a little local research first. And yes, if you buy out your leased car, you are entitled to sell it.
“But many states and counties have laws that prohibit anyone without a dealer’s license from purchasing a car to sell it immediately,” Moody said.
Additionally, you will likely need to pay a new registration, and it may take some time for license plates, registration cards, or stickers to arrive. That may be enough to put the brakes on your plans to turn the car into an immediate profit-maker.
“Still, once it is your car, you’re free to keep or dispose of it as you see fit,” Moody said.
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Additionally, a dealership can work with you to buy the car out of its lease as you immediately trade it in to them. In that case, you may only own it on paper for a few moments. That could give your replacement car shopping the budget boost it needs.
This story originally ran on Autotrader.com.