Buying a car rental: is it a good idea?

(iSeeCars): If you’re currently renting a car and the end of your lease term is approaching, you may be wondering what to do next. Given the scarcity of new car inventory, available new cars are selling above MSRP and car leases are also significantly more expensive than they were a year ago. And while buying a used car was once a smart financial decision, used car prices are at record highs and, in many cases, more expensive than new cars.

In light of today’s market for new and used cars, buying your car on lease might be your smartest choice. How does the process work? Should You Buy Your Car Lease? We have the important answers.

How Lease Buyout Works

If you’re leasing a vehicle, most finance companies will include a buyout option as part of your lease. Your car lease will list the purchase price at the end of the lease based on the residual value of the car, which was estimated when you signed your lease. Leasing companies will often contact you near the end of your lease term to discuss your end-of-lease options, which will include the option to buy out or return the vehicle to the dealer.

Residual value in the current market

Dealers calculate a vehicle’s residual value based on its projected depreciation, and this value is locked in at the beginning of a car lease. And because the start of your lease was before the pandemic and ensuing supply chain issues, the purchase price is likely to be well below current market value. So while buying your car at the end of the lease used to be advantageous only in a few situations, today’s market has made buying your leased vehicle potentially lucrative in many cases. According to a recent iSeeCars analysis of the best leased cars to buy, the average three-year-old used car is worth 35.7 percent, or nearly $8,000, more than its estimated residual value at the beginning of its lease term. That means you can buy your leased vehicle and sell it for a profit, or you can continue to drive your gently used car at well below market value. Keep in mind that if you decide to sell your car, you’ll have to buy a new one at this elevated market, which will likely absorb most of your profits.

Understand the value of your vehicle

This is how you can compare the vehicle’s residual value or total purchase amount to its market price. To calculate the vehicle’s market value, you can use pricing tools such as the free VIN Check from iSeeCars, Kelley Blue Book, or Edmunds. Be sure to review your original contract for additional charges, such as a purchase option fee, to determine the total amount you’ll pay for the vehicle.

And be on the lookout for extra dealer or finance company fees that weren’t specifically mentioned in your lease. Dealers are well aware of today’s high used car values, and some try to take advantage of the situation by charging extra fees, either to make more money during the lease buyout process or to discourage consumers. to purchase the vehicle… so that the dealer can purchase and sell it for a profit themselves. Check rates during the buyout process against the original lease and discuss any rates that do not match.

Can I finance the total purchase of my lease?

You can finance the entire purchase of your lease just as you would a regular used car purchase. The dealer will be eager to offer you financing, but you should also examine outside financing options as you would a typical car loan. That means comparing interest rates from other lenders, including banks and credit unions, to see who will give you the best rate on your car lease purchase loan. Some lenders even offer auto loans specifically for the purchase of leases. Keep in mind that the shorter your loan term, the more you’ll save on interest payments, but the higher your monthly payments will be. That means you should go for the shortest loan term you can afford. Plus, your credit score will determine your loan rate, so make sure you’re up to date to get a competitive rate. If you have a low credit score, you should consider having a co-signer.

Other things to consider

Anyone who has ever rented a car knows the additional charges that often come at the end of a car lease. These fees include exceeding mileage limits or any excessive wear and tear your vehicle may have, such as scratches or dents. Buying out your lease will relieve you of these charges, so if either situation exists with your lease, it’s yet another reason to buy your car when the lease is up instead of returning it.

Some lease agreements offer advance lease purchases that allow you to purchase the vehicle before its term expires. Be sure to check your lease to see if you will have to pay additional fees for an early purchase. If there are fees involved, it’s probably a smarter move to wait until the end of your lease.

Bottom line

Purchasing your vehicle lease can be a lucrative way to save on a gently used vehicle in today’s market. You’ll also avoid low inventory and markups on new cars. Plus, you can enjoy the savings that come with buying a used car in today’s market and take the guesswork out of how the car was driven and maintained by its previous owner. You can even sell your vehicle to a private seller for a profit if you no longer wish to drive it. So if the end of your lease is nearing, you should at least consider buying your vehicle instead of getting another lease or buying a new or used car to replace it.

More from iSeeCars:

If you’re ready to start the car-buying process, you can search over 4 million new and used cars with the iSeeCars.com car search engine that helps buyers find the best car deals by providing information key and valuable resources, like free iSeeCars. VIN check and Best Cars ratings.

This article, Buying a car rental: is it a good idea? originally appeared on iSeeCars.com.

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