Key takeaways
- Leasing a car before buying can be a good idea as it may save money on initial payments and allow you to test the car before committing to a loan.
- Before buying a leased car, assess its condition and future resale value.
- In some cases, it may be cheaper to buy a car outright rather than leasing and then purchasing it.
Many drivers choose to lease a car to lessen the monthly cost or afford a more luxurious option. And after leasing a vehicle, many drivers then choose to buy it. This option is best for drivers who have fallen in love with their leased vehicle and don’t wish to return it.
Consider the process of a lease buyout and how to determine if it is the right financial move.
When should you lease before buying?
A lease buyout is a good idea if you are ready to drive a vehicle long-term rather than going ahead with a new lease. If you want lower initial payments before committing to a car loan, leasing with the intent to purchase could work.
It is not the right choice if you are the type of driver who always wants the latest model.
To decide which option is best, add the total cost of leasing a car, including upfront fees, to the car’s projected residual value at the end of the lease. Then compare that number to the car’s sale price, plus all fees and money factor over the life of the car loan. See which number is lower.
Sometimes, leasing and then buying is more expensive than buying outright. This is especially true if you exceed the dealer’s mileage limits or the residual value at the end of the lease is much higher than anticipated.
But imagine you can get a good money factor deal on your lease and the residual value is lower than expected. Leasing could let you avoid getting locked into a car until you know it fits your lifestyle.
Bankrate tip
To simplify the math, use a lease vs. buy calculator to see net cost differences.
Key considerations before leasing to buy
Ahead of choosing the make and model of your potential lease, weigh your typical driving habits.
How long do you want to drive the car?
Decide how long you intend to hold onto the vehicle. If you hope to buy or lease the newest model in less than two years, it doesn’t make sense to lease and then purchase the vehicle. There is no way to know if your car’s residual value will increase or decrease over the lease term. But if it decreases and you decide to keep the car for a short period, you’ll likely owe more than the car is worth, and the money will have to come out of pocket to swap it out.
How many miles do you typically drive a year?
Leases come with annual mileage limits (typically 10,000, 12,000 or 15,000 miles). If you exceed those limits, purchasing your vehicle after the lease might save you from excess mileage fees. But be sure that those fees outweigh the price you’ll pay to purchase the vehicle.
Will you truly save money?
Compare a new monthly vehicle payment to a lease payment. Also, factor in:
- The purchase price.
- The security deposit.
- The acquisition fee.
- Documentation fees.
If you would pay more while leasing to buy, it might be smarter to buy the vehicle outright rather than leasing it first.
Buying out a car lease: How to do it
Be wary of jumping the gun if you have fallen in love with your leased set of wheels. First, consider the expected cost and the vehicle’s condition.
1. Weigh financing options
Get at least three different auto loan rates for a car purchase or a lease before signing off. The more offers you have in front of you, the better your chance of receiving a good deal.
It can also help you determine whether leasing a different vehicle or buying the car you’ve been driving will be more affordable over time.
Shopping for a lease buyout loan should be approached with the same care as securing a traditional loan. Many lenders, such as Gravity and Auto Approve, offer these types of loans at the same rates as their new or used loan options.
2. Assess the car’s condition
Consider getting the vehicle checked before deciding to go through with a buyout. Depending on how long you have had the lease, you may be under the factory warranty and get necessary repairs cheaply.
You shouldn’t purchase the vehicle if it is in poor condition. But be prepared to cover excessive wear and tear with fees charged by the dealer.
3. Negotiate the price
Often, companies have a no-negotiations rule for the purchase price of a lease buyout, leaving little opportunity for haggling. Still, it can’t hurt to raise the subject. Ask the seller to consider a few concessions, like:
- Waiving the purchase-option fee.
- Offering purchase incentives.
- Discounted financing.
Experts point to the purchase-option fee as a sticking point many sellers are willing to take off the table.
The bottom line
Before deciding to lease and then buy your next car, weigh the costs. Only go ahead if you are getting a great deal on both the lease and the payoff amount. If it would be cheaper to buy your car upfront, or if you think you’ll want the car for a long time, skip the lease. Just buy a car directly instead.
