If you lease a vehicle, you’ll return it at the conclusion of the contract’s term. But what if you prefer to keep it? In most cases, you can, by simply paying the residual value listed in the contract. That value, though, is determined years in advance and may not reflect the vehicle’s actual worth. Here’s how to buy out a lease and save money in the process.
1. Examine your lease agreement.
Review your lease agreement and find the section that lists the vehicle’s residual value. That amount along with the disclosed fees is what the lessor expects you to pay to satisfy the contract. Although the amount may seem firm, it typically is not.
2. Inspect your vehicle.
You have maintained your lease car thus far and likely have a vehicle that is in decent shape. Unless you went over on the mileage allowance, the wear and tear you observe will be appropriate for the age of the vehicle. Even so, other factors can determine its worth, including the number of miles on the odometer, its overall condition, and popularity or the lack thereof. For instance, if you leased a convertible in Minnesota or a four-by-four in Florida, what those models may fetch locally could be much lower due to reduced consumer demand. On the other hand, a Honda Accord Touring may offer little room for negotiation.
3. Determine its book value.
Remember, the “residual value” is determined years ahead of time and simply represents the leasing company’s estimated value at lease conclusion. To obtain an accurate value of what your ride is worth today, you need current information. That’s where sites such as Kelley Blue Book (KBB) and the National Automobile Dealer Association (NADA) come in. Both will allow you to key in information to learn what the vehicle is worth if it is traded in or sold privately. Though the figures are not the residual value, they will be in the ballpark. You have an improved chance of negotiating and winning a lower price if the values are lower. Use that information as you negotiate.
4. Reach out to your leasing company.
Do not deal with the car dealer in all matters of leasing. The leasing contract is between you and a leasing company, therefore reach out to the company directly. With the pricing information in hand, make an offer for your vehicle. The leasing company can accept or reject your offer. They may also counter with an offer of their own.
5. Set a price limit and do not budge from it.
Realistically, your price limit for buying out the lease is no higher than its residual value. That’s the point: pay no more than its worth, but intend to save money. If you believe the vehicle is very overpriced, then set a price you’re comfortable with. Stick with it, making it your red line. If the leasing company gives you a price at or below your established limit, then make the deal. If not, return your vehicle at the conclusion of the lease term.
Finance your vehicle yourself. Another tactic is to finance your leased vehicle. Here, you will work with your bank or credit union to obtain a used car loan. Your banker, though, may object to the residual value, especially if it is much higher than the car’s book value. For instance, if the residual is $16,250 and the book value is $15,400, the banker may choose to lend you the latter, minus a down payment. If that’s the case, you may have leverage with the leasing company as you will have a loan offer in hand.
Win the Residual Value Battle
Yes, lease residual values are almost always inflated. With deft negotiation, you can often garner a lower price. That said, there may be certain fees that will still apply. Finally, you’ll also be responsible for paying registration fees to the Department of Motor Vehicles, as well as any applicable sales tax to your state. Those last fees are non-negotiable and after the consumer contract has been ratified.
Photo Attribution
Image by Andreas Breitling from Pixabay
See Also — Car Expenses to Consider Before You Make That Big Purchase
Matt is a member of the Washington Automotive Press Association and is a contributor to various print and online media sources including NAPA, CarsDirect, CapitalOne, and Driven Autos.
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