Leasing a vehicle for two, three, or sometimes four years involves making payments, but at the end of the term, you have the option to just walk away from the vehicle. This contrasts with financing, where you might still owe more than the car’s worth or face maintenance issues.
The Buyout Option
At the lease’s start, you’re offered a buyout option, typically around half the original price for a three-year lease. Lease companies accurately predict the car’s value at the end of the term, often making the buyout a break-even proposition.
Artificially raised residuals
Manufacturers sometimes inflate the buyout value to lower lease payments. This strategy maintains the car’s perceived value and benefits the manufacturer if the lessee chooses to buy it.
Market Value Surpasses Buyout
Recently, used car values have surged, causing many lessees to find that their buyout price is lower than the market value. This situation presents an opportunity to either keep the car, sell it for profit, or use its equity toward a new purchase.
Lease Turn-In vs. Lease Trade-In
While turning in a lease involves simply walking away, trading means using its residual value as equity toward the next car. Buying out the lease can be financially savvy, especially if the market value exceeds the buyout price.
Current Market Dynamics
Leasing a car now might lead to significant financial gains at the end of the term, given the current market conditions. However, this may not hold true in the future, so careful consideration is advised.
Considerations for Existing Leases
If you leased a vehicle in recent years, it’s wise to evaluate the buyout option as your lease approaches its end. Ensure the paperwork is in order, as buying out a lease involves a transfer of ownership but can potentially add equity to your next purchase or provide immediate cash savings.