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How To Decide If A Loan For A Car Lease Buyout Makes Sense
By EchoBay Loans Staff Writer

For most people, leasing a car is a great option and less expensive than buying. Payments on a leased car can be significantly lower than those on a new car. When the lease ends, it is time to make the decision whether to simply turn the car back in and lease a different car or do a car lease buyout. Some people are so pleased with their leased vehicle that they decide the car lease buyout is definitely the way to go. Most of the terms for this deal will be spelled out in your contract. But don't assume they're etched in stone, just about everything can be negotiated.

Before we examine the actual car lease buyout process, you need to understand a few key terms:

Residual Value: The residual value of your car is listed in your lease.
This is the amount that the dealer expects your car to be worth at the end of your lease. Depending on the depreciation your vehicle undergoes, this amount could be more or less than the market value of the car.

Capitalized Cost: This is the value of the car the day you leased it. The capitalized cost is also referred to as the lease price. Keep in mind this is usually lower than the sticker price on the car as long as you negotiated with the dealer! The closer the capitalized cost is to the residual value, the lower your lease payment will be.

Purchase Option Fee: This is a fee that the dealer charges for you to exercise your option for a car lease buyout. The fee can be just a couple of hundred dollars or it could be much more. Again, this depends on your lease contract and it should be spelled out exactly in your contract. To figure out the cost of your car if you do an auto lease buyout, simply add the residual value to the purchase option fee.

One of the most important factors when you are trying to decide if an auto lease buyout is your best choice is what the market value of your car is. There are many guides online such as NADA and Kelley Blue Book or web sites such as Cars.com, that can help you establish a value. It is helpful to look at the retail value and wholesale value. If your market value exceeds the residual value of your car, then it could be a smart decision to exercise the car lease buyout option. It may even be possible to buy the car just to turn around and sell it to make a profit.

If your car's market value is less than the residual value, you should seriously consider simply turning the car in. In this situation, you could possibly visit the nearest dealer's used car lot and buy the same car for less money. But don't assume that your car's residual value is ironclad.

Before your lease is up, your finance company will be contacting you to ask what your intentions are with the leased vehicle. It is in their best interest for you to buy. While some major leasing companies are unable to negotiate, smaller companies may be willing to work with you. Ask for a reduction in the residual value or a waiver of the purchase option fee. You could also ask if they have any special financing rates available.

Be sure to take into consideration that the warranty on your car most likely expires at the same time as your lease. Any repairs or maintenance will now be coming out of your pocket. It is also wise to compare the car lease buyout to leasing a new car and buying another car. By comparing all of the options, you can ensure you get the best deal for your situation.

Yet another consideration is if you will be charged extra fees for mileage and wear and tear when you turn in your leased vehicle. These fees can add up quickly, particularly for mileage. If you are facing a large fee, the best bet for you may be to exercise the auto lease buyout option.

Once you have all of this information in hand, you are ready to make your decision. If handled right, it could be a profitable one for you as well.


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