The termination date on your auto lease agreement is fast approaching. Where has the time gone? It's been less than 36 months, and it's already time to decide if you want to continue the relationship. You didn't think you could get so attached. Walking away - it's just too much to bear.
Okay, maybe it's not that dramatic. But turning in the keys to your leased vehicle isn't easy if you've fallen in love with its high MPG, its reliability, or the way the driver's seat molds perfectly to your form. Or, maybe you can't bear to break up with those low monthly payments that come with leasing a vehicle.
No matter what you decide, your future will be affected. So weigh these pros and cons to help determine if it makes financial sense for you to buy out your car lease.
What is an auto lease buyout?
An auto lease buyout is a purchase option car dealerships include in most lease agreements. Shortly before the contract's termination date, the leasee has an option to purchase the vehicle for the predetermined price.
Since you need wheels to get around town and public transportation isn't your preferred option, you must decide whether to buy out your auto lease or turn in the vehicle and begin a new lease. While you could purchase another new car altogether, coming up with a hefty down payment and paying a higher monthly payment is hard to do.
Pros of a Lease Buyout
Buying the vehicle you've gotten to know over the past few years has multiple benefits. Some include:
- You could take advantage of auto financing deals. According to Nancy Nuno, Branch Manager at Logix's Tarzana Branch, now is one of the best times to apply for an auto loan. "Buying a car today can be an attractive option for our member’s due to Logix’s low rates and term flexibility," she says.
- You'll own an asset. When you buy out your lease, you own the vehicle. While it's a depreciating asset, ownership gives you several perks that were unavailable while leasing. You no longer need to worry about over-mileage fees or modification restrictions. You also now have the right to sell your vehicle at any time and use the funds to purchase another vehicle outright.
- You'll put an end to never-ending lease payments. "Leasing means you will always have a car payment," says Nuno. "When you buy, eventually you won’t have to pay any car payments. This could free up money in your budget for other financial goals – like purchasing a home!” she adds. And, the longer you keep the car after you say goodbye to auto loan payments, the more money you can save on transportation costs.
- You'll be free from mileage limits. Remember those mileage limitations that came with your lease? Expect to see them again if you roll into another lease agreement. While you could secure a high mileage lease this time, you'll still pay as much as 50 cents for each mile that exceeds your preset limit. But if you purchase the vehicle instead, you no longer need to fear those pesky restrictions or charges.
Cons of a Lease Buyout
Purchasing a vehicle at the end of the lease isn't the best choice for everyone. Here's why.
- Your payment might increase. Lease payments are typically based on the depreciation amount and the number of months in your lease contract. This often results in a smaller monthly payment compared to an auto loan where you're financing the entire price of the vehicle, less a down payment amount.
- You can say goodbye to leasing perks. Some leasing contracts include free services for the life of the lease, such as tire rotations, oil changes, and other types of basic maintenance. If you buy out your lease, you'll need to budget for these expenses and any other necessary repairs as part of the cost of ownership.
No easy answers here. We believe the best move of all is to talk with an expert to go over your unique financial situation.
Whether you decide to stay in your current vehicle or pursue other options, Logix is in your corner. We can get you pre-approved for an auto loan so you can keep your beloved vehicle and buyout your lease. Call (800) 328-5328 to speak with a Tarzana Branch Auto Advisor who can help you get back on the road and payment-free for as long as possible.
*Logix Federal Credit Union is not affiliated with Car and Driver, and is a separate entity.
Pre-approval is subject to credit approval and additional restrictions or limitations may apply.
Auto loans are available only in AZ, CA, DC, MA, MD, ME, NH, NV and VA. Logix membership is required.
Please contact Logix at (800) 328-5328 or visit www.lfcu.com if you have any questions about this topic or would like to consider opening an account.