lease-end buyout negotiation

Lease-end Buyout Negotiation – Everything You Need to Know

So you want to buy the car you are leasing, but the purchase price is too high. What can you do? Is the price negotiable or set in stone?

While the ability to negotiate can vary from company to company, you certainly shouldn’t rule out the option until you’ve dug a little deeper.

To help you get the best deal on a lease-end buyout, here’s everything you need to know.

What costs are involved in a lease-end buyout?

Kerry Moriarty, a business consultant with a background in financial services, says, “When you make the decision to lease a vehicle from the dealer, you’ll agree to the number of years in the lease and the number of annual miles you can add to the car within the lease term.”

Most leases are a standard 12,000 or 15,000 miles per year. The dealer uses this information to determine the cost of the buyout.”

She continues, “Most leases are a standard 12,000 or 15,000 miles per year. The dealer uses this information to determine the cost of the buyout.

So, for example, say you’re leasing a 2018 vehicle with a new value of $35,000 and a 15,000-mile 36-month lease – when you return the car at the end of your lease in 2021, it will be three years old with 45,000 miles on it.

The value of that car is, say, $20,000. So at the end of your lease, you have the option to either turn in the car and walk away or purchase the car at the buyout value of $20,000.”

There are also usually state taxes, transfer costs, and a purchase option fee that you will need to pay.

Rob Campbell, an analyst in retail automotive for Withum Smith & Brown, says, “It is important to remember that sales tax has not been paid on the remaining balance, only on the depreciation.

For instance, if you lease a vehicle that has an MSRP of $50,000 and a residual of $30,000 and you have paid the $20,000 through your lease payments, the remaining $30,000 balance for most jurisdictions would require sales tax to be paid.

Additionally, the plates and registration will need to be changed from the leasing company to your name.”

So, which of these costs are negotiable?

Look at your lease contract to find the buyout amount and then look up the trade-in value of your vehicle online.”

3 steps to lease-end  buyout negotiations

While you can’t do much about taxes and fees, you can attempt to negotiate down the cost of the purchase price. Here are the steps:

1. Find out what your car is actually worth

The buyout price for your car may not be competitive. In other words, it may be higher than the fair market value. Campbell says, “Look at your lease contract to find the buyout amount and then look up the trade-in value of your vehicle online.”

You can use an online appraisal guide to estimate the actual value of the car, and be sure to enter the actual mileage. Campbell explains that, if the trade-in value is higher than your buyout amount, the difference can be considered equity.

You can still try to negotiate if you have equity, but the company will be less likely to make a deal. In this case, you are already ahead and are getting a good deal.

On the other hand, if the vehicle is worth less than the buyout price, you will have negative equity. It will be beneficial to try and negotiate down as close to the actual value as possible.

If you don’t buy the car, the leasing company will sell the car at an auction or directly to a dealer, which involves an investment of time and money.

It may be beneficial for them to give you a break on the price, so they don’t have to worry about selling it, especially if your buyout price is well above the actual market value.

How do you go about negotiating?

2. Let them come to you

It’s the old game of playing hard to get. You don’t want the company to think you are eager to buy the car, as they will be less likely to lower the price.

Typically, when a lease is coming to an end, the company will contact you to review your lease-end options. When they do, tell them you are planning to return the car because the residual price/purchase price is too high.

If you wait and wait but don’t hear from them, you may need to make the first move.

Either way, it’s important you’ve done your research by the time you talk to them, so you know where you stand regarding your car’s equity. If you have negative equity, you can use that as leverage.

Feel it out to see if they are willing to give. If they won’t, end the conversation. You can call back later to make your final decision.

Campbell says that it’s debatable whether a leasing company will negotiate. He explains, “The only ones that might negotiate are smaller leasing companies, which account for a tiny amount of the leases out there.

Chances are, if you went with one of these, either you have some kind of unique issue (credit, state of residency, etc.) or you are operating outside the normal transaction process (such a brokered lease).”

He doesn’t think the captive leasing companies would negotiate, giving the following example, “BMW Financial is there to help sell new vehicles, not keep you in the same one. These companies send thousands of vehicles to auction, which does not cost as much as in the past.

Now, the lease turn-ins are just listed online for their dealerships to buy. And, if you are BMW, you even force the dealerships to purchase a certain number of these vehicles each month.”

While this may be the case, it certainly does not hurt to do your research and attempt to negotiate the price.

3. Shop around for financing

If you are going to finance your vehicle purchase, it’s a good idea to shop around for loans while you’re waiting to negotiate. You may receive a financing offer from the dealer, but it’s never good to take the only offer you get. Plus, dealers can be sneaky.

Some automotive retail lending institutions are very capable of handling the transaction with you right over the phone. They will complete a buyer’s order, remit the sales tax, and get the registration for you. However, they often will collect a documentation fee, if allowed in your state, of around $200 pay for all the legwork.”

Campbell says, “Some automotive retail lending institutions are very capable of handling the transaction with you right over the phone. They will complete a buyer’s order, remit the sales tax, and get the registration for you. However, they often will collect a documentation fee, if allowed in your state, of around $200 pay for all the legwork.”

He adds, “You could also get a loan privately through another bank and pay off the lease. Further, if you have the financial ability to get an unsecured loan, that is a possibility.

Or, you can return to the selling dealer and explain to them you would like to do a lease buyout. They will do all the leg work as well, but will likely have higher documentation and processing fees (again as allowed by your state).”

A 2017 study found that, by getting quotes from at least three lenders when shopping for an auto loan, the average borrower could find the best available rate for their borrowing type.  So, shop around with various lenders to see what you can get.

By following these steps, you can potentially negotiate your way to a better deal on your lease-end buyout.

Can you negotiate the price of a car lease up front?

To save on the negotiations at the end of a car lease, can you negotiate the price of the car upfront?  Before we get into the answer, let’s break down the costs of a car lease.

There are three parts, which include:

1. The price of the car

When you decide you want to lease a vehicle, some aspects will be the same as when you are buying, such as negotiating the transaction price (aka the price of the car) with the dealer.

This is the only part of a lease that you can typically negotiate. Being so, make sure you do your homework ahead of time to determine a fair price for the vehicle you plan to lease.

2. The residual price

The residual value is a percentage of the MSRP, not a percentage of the negotiated price of the car. Dealers use different leasing companies, which can vary in the residual values they offer. Various industry sources are used as a basis for setting values, and there are different ways of calculating the values.

Some companies (often captive financing companies owned by leading manufacturers) offer higher-than-normal residual prices as a way to lure in more customers. They can afford to lose a little bit on the back-end to get business on the front-end.

Being that there is no universal formula, you will have to ask the dealer what residual price they offer.

3. The interest rate

Interest rates are offered to you based on your credit. While a particular company may not be willing to negotiate on the interest rate they give you, you can shop around to compare the interest rates available from various dealers.

So, in summary, the answer is yes. You can negotiate the price of a car lease up-front by negotiating the purchase price of the vehicle. However, the interest rate and residual price are often set in stone.

Can you buy out a lease early?

Yes, you can buy out of a lease early. However, you are breaking a contract, and it will cost you. The costs can include:

  • A fee for early termination/buy out
  • The remaining payments on your lease
  • Taxes
  • Fees to prepare your car for sale
  • Charges for storage and transportation
  • Negative equity between the current value of your car and your lease amount

In most cases, it’s the least cost-effective route to buy out of your lease early and return the vehicle. However, buying out of the contract early to trade in or buy the vehicle can cut down on some of your costs.

Learn about buying a leased car before the lease is up.

Find the best car lease buyout loan for you

Now that you understand lease-end buyout negotiations, how do you find the best deal on financing the transaction? You don’t want to do all the work to get the price down only to pay more than is necessary to a lender.

Here’s how to make shopping around much more convenient.

Get personalized, competing offers from reputable personal loan lenders and auto lenders by answering a few simple questions (it won’t hurt your credit score!). Then, compare the offers side-by-side to find the best loan for you.

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