How Can You Make A Profit Form A Car Lease Buyout?

If you leased a vehicle in the last three years you may have found that that turned out to be a very smart money move and here’s why…

When you lease a vehicle for 2-4 years you make payments but at the end of that term, you can just walk away from the vehicle rather than having another two or three years worth of payments. Where now, the car is out of warranty and may have high miles, or you may just want another car. Most people only keep cars for two or three years anyways and then flip them to a new car. If you financed it, you probably would owe more money than it’s worth but if you lease the vehicle, at the end of that three years you walk back, drop off the keys, and you walk away. Now, you also have the option to purchase the vehicle. 

At the beginning of the lease, you are given a written, documented contracted etched-in-stone option where you can buy it for a fixed amount. Usually, for a three-year lease, it’s about half of what the original price was. So if you buy a $50,000 car at the end of three years after you’ve made your payments you can either walk away. Or pay half the value of the car and own it. Up until the last couple of years, the lease companies guessed pretty well as to what the value is going to be in three years and it was almost a breakeven. So if your buyout option was $25,000, the car was probably worth $25,000. In fact, in some cases, the buyout option was more than the current value because lease companies and manufacturers sometimes artificially goosed up that number to give you a lower payment. In a way that discounted the car without making it seem like it was a bargain. For example, if you’re leasing a BMW or you’re going to buy a BMW and they had big stickers in the window that said $2,000 rebate 0% financing and all kinds of balloons and carnival acts, you might not think that BMW is really that prestigious of a brand if they have all these discounts flying around. A lot of manufacturers even the discounted and lower-end cars got away from this circus act of discounting. What they did instead was they put the discount built into a lease so they could just offer you a lower payment. And it was a way to discount the vehicle without having to make it look like blue light special, right? So what that did was artificially raised up the residual and the advantage of the manufacturer is if you bought off the vehicle they never lost that money. 

But here’s the thing, over the last two years or so used car values have gone through the roof. So many people get to the end of their lease and realize that their buyout is way less than the market value. In fact, that car that you have a buyout of $30,000 or $25,000 might be worth $31,000 or $32,000. So if you buy it you’re already making money. Even if you don’t want to keep the car if you buy it and then resell it you could pocket the difference. Or if you are going to get a new car anyways, instead of doing a lease turn-in, do a lease trade-in. A little bit different scenario with just one word. A lease turn-in is you walk away, drop off the keys and you’re done. A lease trade-in is you use that lease residual as a trade-in toward your next car. So if it’s worth $30K and the buyout was $25K, that $5,000 equity goes towards your next car. So buying out that lease is a very smart financial move if the residual value is lower than the market value. And in many cases, it is with this current market. 

Now going forward, if you lease a car today, that might not be the case three years from now. So don’t make this a motivation to lease a new car right now might not be the same thing in two or three years but right now is a sweet spot. If you leased the car from 2018-2020, and your lease is up or coming up definitely check out residual and make sure the paperwork is done. It’s a little bit of a tricky scenario buying out your lease because it’s not a lien where you do a lien payoff you’re doing a lease buyout where it transfers ownership, and you have to make sure that’s done correctly, but at lease by out could be a way to add equity to your next purchase or just simply put cash in your pocket.

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