You've fallen in love with the car you're leasing and want to buy it. Most lease contracts allow you to buy the car at the end of the lease or through an early buyout. Before buying the car, consider its residual value. This is how much the car is worth to the lease company and most likely the amount you will pay to own the car.
Before your lease is up, you can often purchase your car through an early buyout. Some leases have restrictions on this though, so it's important to check your contract.
When you enter into a lease, the lender estimates the car's worth at the end of the lease term. This amount is the residual value of the car or the unused portion of the car's value. A high residual value means lower monthly payments. Conversely, a low residual value equates to higher payments. The residual value is negotiable depending on the lease company's policies.
You have the option of buying the car at the end of the lease or through an early buyout before the lease ends. To see if these options are available to you, check your lease contract. Some lease policies have restrictions on early buyouts. Assuming there is no early buyout restriction, you pay the residual value of the car either with cash or financing. If you finance, the lender simply cuts a check to the leasing company, and you make monthly payments under the loan agreement.
Considering an Early Buyout
The best case scenario is if the car’s residual value equals its market price. A high residual value relative to its fair market price means you pay more for the car than what it's currently worth. The market price of the car is based on how much the car is worth if you bought it from an individual or dealer. Another way to look at residual value is how much the car is worth wholesale or its trade-in value. The wholesale price is the car's worth to the lease company when you return it.
Negotiating Residual Value
In many cases, you can negotiate the residual value of a car lease, but it’s probably best to do this up front. The residual value is pretty much set in stone once you sign the lease agreement. When negotiating residual value, come prepared. Do your research by finding out the fair market price for the vehicle and its value as it depreciates over time. Start by visiting dealerships. Secondly, conduct an online search. Get to know the car's retail and wholesale price. The lease company is more likely to accept your offer if you make an argument based on well-researched fair market prices.
- LendingTree: How a Car Lease Buyout Works
- Bank of America: Is Buying Out Your Auto Lease Right for You?
- Innovative Funding Services: What Is a Car Lease Buyout?
- Edmunds. "The 'Residual Value' of Leasing." Accessed May 3, 2020.
- Consumer Financial Protection Bureau. "What Should I Know About the Differences Between Leasing and Buying a Vehicle?" Accessed May 3, 2020.