The COVID-19 pandemic shook the world to its core and the aftershocks are still being felt across the board, including in the car market. If you haven’t already, you may experience a case of sticker shock the next time you visit the car dealership.
The current market has made one car-purchasing option particularly popular: buying out car leases. Owning your once-leased vehicle often makes financial and practical sense. You get to stay in a car you’re already familiar with and know the history of, and there’s a good chance it will cost less than buying a similar used car.
For the first time in history, the average price of a new car in the United States has surpassed $45,000, according to Kelley Blue Book. September’s average transaction price was $45,031, nearly 4% higher than in August and a 12% increase from one year ago. It also marked the sixth consecutive month of rising prices, each one setting a new record high.
The unprecedented cost of cars is largely the result of a dwindling supply of vehicles. Automakers have been burdened by a global semiconductor shortage for months that has drastically slowed manufacturing, resulting in limited availability and increased costs.
Those looking for relief in the used car market won’t find much. The price of used cars is reaching record highs as well, with the average cost topping $25,000 this summer, according to Cox Automotive.
Should You Buy Out Your Car Lease?
With a short supply of new cars available, it will be more difficult to find the vehicle of your choice. If you do, it will likely cost more than ever. One solution to navigating such a market is to buy out your current car lease.
When you reach the end of your lease agreement, you have the option of returning the vehicle to the dealership or taking the buyout option, where you pay to own the car. Some contracts also allow drivers to buy out their lease before the agreement expires.
The buyout price of the vehicle, also known as the purchase price option, is usually set at the time of the lease signing (you should be able to find it on your agreement contract). It is determined based on the car’s residual value, the car’s predicted price at the end of the lease. This is where the current car market comes into play. If your lease agreement is coming to a close soon, you likely signed the deal several years ago, before the cost of used cars skyrocketed. Therefore, your purchase price option should be favorable and likely less than what a used car on the open market would cost you.
Another consideration is the condition of your leased car. The dealership will inspect your vehicle when your contract comes to an end. If there’s any damage above the normal wear and tear, you’ll be responsible for the costs. If you choose to buy out your lease, however, you won’t need to pay. That money could instead go toward purchasing the car.
The same is true with mileage. If you exceed your lease agreement mileage limits, you’ll be on the hook for per-mile penalties if you return the vehicle to the dealership – but you won’t be if you buy out the lease.
How to Buy Out Your Lease
If you’re thinking about buying out your lease, take a look at your current lease agreement terms and the car’s residual value. Then compare these numbers to the going rate of the car today. Remember, when buying out a lease, you’ll have to pay the residual value plus any applicable taxes and fees.
Fortunately, lease buyouts can be financed through auto loans. The process is very simple and much like that of any other car purchase or refinance. It’s always a good idea to shop around for loans with the best terms and lowest interest rates.
Looking to buy out your car lease? AAA has you covered with low-interest auto loans to help finance your purchase.