If you love your leased vehicle, you may decide you never want to give it back. Yay! You don't have to. Most auto leases allow the customer the option to buy the vehicle at the end of the lease or even sooner. When you purchase your leased vehicle, it is referred to as a lease buyout. Buying out a lease does not have any significant fees or consequences, but there are some things you may want to consider.
End of Lease Buyout
When you enter the lease agreement, the company specifies the car's projected estimated value at the end of the lease. This price, known as the residual value, may be negotiable. To determine if the car is worth purchasing, compare the residual value to the current market value. Your current leasing company can offer you financing, but comparing interest rates of other lenders might prove beneficial.
The price is a combination of the residual value and the amount you are required to pay under the lease agreement due to various fees, add-ons, nicks and cuts. If you have exceeded the allowed millage or if there is damage to the car, you may owe fees and you may want to consider the early buyout option. There is less room for negotiating a deal before the lease terminates. In most cases, an end-of-lease buyout is the best option.
If you lease a vehicle for work, all or part of the payment may be a tax deduction. After a lease buyout, your payments will no longer be deductible. It is not uncommon for lease customers to buy their vehicles with the intention of reselling them to a third-party for a profit. If you decide to sell the vehicle, avoid the double taxes when possible. In California, for example, if you sell the lease buyout vehicle within 10 days of purchasing it, you will not have to pay sales tax. Some auto dealers may also be willing to help facilitate a third-party sale as a courtesy to customers.
Your credit score will not change when you decide to purchase a vehicle you have been leasing, provided the payments do not increase. If they do increase, your total monthly expenses will also be higher on your credit report, and that might adversely affect the debt to income ratio that lenders look at when they consider whether to loan you more money. When you pay off the car in full, your ratio can improve because you will no longer carry the debt.
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