Car buyers who decide to buy out a car lease are sitting in the driver's seat. And they could end up tens of thousands of dollars ahead if they take advantage of the trend.
Why? If your lease is up, you may have thousands of dollars in car equity. In most cases, market conditions and inflation have driven up the current value of your leased car well above the lease buyout price. That price was set back when you signed the lease.
Just in the past year, used car prices have gone up on average 30.4% across the country (March 2021 to March 2022), says iSeeCars.com, based in Woburn, Mass. The chip shortage and supply chain issues for new cars are making them hard to get and very expensive. Thus, used car prices have skyrocketed.
In Connecticut, prices for used vehicles went up a whopping 35.2% year over year. In California, they rose 33.2%, says iSeeCars.com. But price inflation has an upside.
"We've seen people with as much as $20,000 in equity in a leased car," said Marlon Katrell, president of Lease Buyout Center in the City of Orange, Calif. "People are coming off of a lease and buying the vehicle at 50% to 60% below its current market value."
More Incentives to Buy Out a Car Lease
Beyond equity what are some other incentives for buying out a leased car? New cars are not only wildly expensive, they're missing features. Because of the chip shortage a new car of the same model as your leased vehicle many not have many of the same electronics and accessories.
To get a car that's equivalent to yours in features, you may have to step up to a higher-priced model. And new car transaction prices (what people actually paid) rose 12.2% in January compared to a year ago, according to the U.S. Bureau of Labor Statistics' consumer price index Summary.
A Parking Lot Full of Equity (Stock.adobe.com)
According to Kelley Blue Book, in March new car buyers paid an average of $970 more than MSRP. Luxury car buyers paid $2,550 over the sticker price.
And, even if you really want a new car, you may have to wait months to get it.
How to Buy Your Leased Car
Before your lease is up go to iSeeCars.com, Kelley Blue Book or Edmunds to find out the current value of your car. Then compare that value to your buyout price. You'll likely discover that you have substantial car equity.
If you're buying with cash, review your lease to find out if you can go directly to the financing company. "Audi/VW, Hyundai KIA, BMW and Mercedes" let cash buyers buy out their leases through their leasing arms," said Katrell. If JPMorgan Chase or Ally Financial (who work with many car companies) hold your lease, check to see if you can do the buyout through them.
But if you're intending to finance the buyout, you'll have to work with a lender or a company like Lease Buyout Center, which takes care of the buyout paperwork and finds you a lender. Katrell's company works with "dozens of lenders." He says buyers with good credit can get interest rates as low as 2.75%.
Fee Fight
If your carmaker forces you to buy out a car lease through a dealer be ready for a fee fight. Car dealers want to make money off the process and will try to charge "inspection" or "processing" fees.
If those fees aren't specified in your lease, argue. "I would push back hard with the dealer, and I wouldn't hesitate to use the word lawyer," said Karl Brauer, executive analyst with iSeeCars.com, which runs a national vehicle listing site. "The lease contract should specify everything a car lessor needs to pay to purchase the vehicle."
Gregg Fidan, founder of RealCarTips, says many leases do require an inspection on the leased car before it can be purchased by the lessor, but don't specify the inspection cost.
"We've seen dealerships charge customers up to $3,000 to buy out a car lease," said Katrell.
If your leasing company says you must turn in the car at a dealership, "get in touch with as many dealers as you can and see who will charge the lowest fees," said Fidan. "You don't have to turn your leased car into the same dealer that you bought it from."
Also, many carmakers restrict third-party lease buybacks. That means they "won't allow a third party dealer to buy out your lease directly from the leasing company," said Fidan.
You can still sell the formerly leased car on the open market. In some states, you may even be able to avoid the sales tax by selling it in 10 days. Check with your DMV. But that means getting the title from your leasing company, making the sale and ensuring the buyer registers the car within the 10-day period.
