Did you lease a new car back in 2020 and are now coming up to the end of the term? If so, you’ll have some options when the lease finally ends. However, the car market has been a little wonky this year. In that case, could buying out your leased car in 2023 be a good idea?
Here are a few questions to ask yourself before buying out your lease
Before settling on the notion of buying out your car lease, it’s a good idea to ask yourself a few questions first. Fortunately, Ari Janessian – from Negotiation Guides – clearly laid out some of the questions to ask:
- Is your car a highly sought-after brand? – Is your car a Honda, Toyota, or a RAM? Or are you in a highly depreciating car brand like a Mercedes-Benz or BMW? If your car is in the former category, then it may be more worthwhile to buy it out. If not, then you could buy a car that will lose its value quickly.
- Does the car have an accident on its history report? – If the Carfax report on your car shows an accident, then its value could be lower.
- Did you get a bad lease deal? – If you signed up for a 24-month term or with a third-party lease company, you could be underwater on the car’s value.
If you answered “yes” to any of these questions, Janessian says that car values may drop over the next couple of years. In that case, it may not be a good idea to buy out your lease this year. If you buy out your lease now with any of these issues, its value could drop like a rock during the time you own it, and it will no longer be the good deal that it once was.
Decide how long you plan to keep the car
It’s also a good idea to ask yourself how long you plan to keep the car. If you only plan to keep it for a year or two, it might not be a good idea to buy it out.
“The reason why is that you’re probably going to buy for really high right now and sell for extremely low. So if you’re considering buying out your lease, you shouldn’t buy it if you’re only going to keep it for a year or two. You should buy it if you plan to keep it for at least three to five years,” Janessian says.
Determine the value of your car
Another tip for deciding whether or not it’s a good time to buy out your leased car is to check on its current market value. This doesn’t only mean checking Kelley Blue Book or Edmunds; this also means checking the local classifieds to see what other cars in similar condition and age to yours are selling for.
After that, find out what your car’s residual value is. You can do this by contacting the lender or bank that the lease contract is with. The residual value is the payoff amount that the car can be bought out for at the end of the lease term.
Janessian says that if the market value of the car is higher than the residual value by at least 10 to 15%, it’s a good idea to buy it out. In an ideal situation, the market value would be 30% above the residual value.
“If you have a payoff amount of $20,000 and they’re selling this car for $26,000 on the market, go for it. But if you have a $20,000 payoff and it’s going for $20,500, turn in the car and do what you want to do, don’t stick to just that car,” Janessian advises.
Another good idea is to have the car appraised by an actual dealer. We recommend having it appraised by a couple of different dealers, including Carmax so that you can determine if buying out the car would be worth it.
Ultimately, buying your leased car out this year is entirely up to you. However, you’ll need to consider the aforementioned points first to make an educated decision. If it’s not a good idea to buy out the car, check out these other options that you have when your car’s lease ends.