Normally, buying out the lease on your vehicle isn’t a great bargain. But then again, these aren’t normal times. With used car prices up more than 34% from the same time last year, you might be able to buy out your car lease for less than it’s selling on the market right now. In doing so, you could sell your car to dealers and pocket the difference. Here’s a look at how it works.
The market value of your leased car
Most leases have a buyout clause that allows you to buy the car at any point during the lease. Your lease agreement includes a residual value, which is your vehicle’s pre-calculated worth when the lease expires. But with vehicle supply issues related to the pandemic, the residual value of cars can be much lower right now than their actual market value. For example, a lease agreement might give your used car a residual value worth $15,000—but that price likely hasn’t factored in the rapid 34% rise in vehicle prices in the last year, which would be another $5,100 in lease equity.
By comparing the market value with the total costs of buying out your car early (the residual value, remaining monthly payments owed on the lease, sales taxes, and possibly a lease-end fee), it’s possible to come out ahead on your buyout by selling your vehicle on the open market.
How to know your vehicle’s market value
You can find used car prices for the make, model, and mileage of your car by using car appraisal sources like Kelley Blue Book, Cars.com, TrueCar, and Edmunds. From there, you can compare the actual market value of your car with the residual value stated in your lease agreement, as the difference will help you decide whether to pursue a buyout (some models are more in demand than others). From there, you can ask your dealer for a buyout offer that includes remaining payments and a possible lease-end fee. If the math looks good, you can choose to sell it, or pay that equity forward into a new lease for a different car.
Car companies are catching on, however
As Jalopnik points out, normally you can invite offers from dealers like Carvana, or Vroom to purchase your lease directly from your car’s finance department, and they’d cut you a check for the value in its equity, or put that value into a new lease for one of their own vehicles. However, citing supply chain issues, Honda has recently joined Nissan and GM in refusing to accept buyouts from unaffiliated dealers, forcing car owners to return cars back to the dealers they bought them from. This, of course, prevents you from getting the highest bid for your car.
That doesn’t mean that you can’t purchase the car at the buyout price as indicated in the agreement, but you’d need the cash upfront or to finance the purchase with a loan. It’s more of a pain this way, and it carries more risk (since a buyer isn’t lined up right away), but once that transaction is completed, you’d be free to sell the car to whomever you please.