when it makes sense to buyout your lease

Most vehicle lease agreements come with a buyout clause, you can purchase the car and keep it when your term runs out. It used to be that this didn't make much sense. When your term expired, it was more logical to enter another agreement and enjoy the benefits of a new vehicle.

But since the pandemic, used cars have gone up in value, you might find your agreement has a buyout price that's less than the market value of your car. So you could either purchase your car and keep it, knowing you've got a good deal, or you could sell it for a profit. If you are currently leasing your vehicle, you might want to consider a buyout, so you can eventually stop making monthly payments, and own your vehicle outright.

Here are some tips on when to buyout your lease:

When You're Near the End of Your Lease.

A buyout makes more sense near the end of your term, when you're less likely to be hit with extra charges, and you'll have fewer remaining payments to cover. Use this lease calculator to figure out what you owe currently, or what you'll need to pay if you get a new lease. If you're approaching the end of your agreement, you could let your leasing company know you're interested in a buyout, or wait for them to make you an offer.

When Your Car Is Worth More Than The Residual Value.

Due to a shortage in microchips, used cars are worth more now than they were before the pandemic. So if you took out your lease before 2020, chances are your car is worth more now than the residual value stated in your agreement. The residual value is what your leasing company estimated the vehicle would be worth at the end of your term, based on known levels of depreciation at the time.

Here's what to do to find out:

• Find your contract and see what the residual value of your car is
• Visit to a website like Kelley Blue Book and look up the current market value of your car
• Note the difference between the two figures

If you find your car is worth a lot more now than what your leasing company estimated, it could make sense to do a buyout.

When You Want to Own Your Car Outright.

If you continue leasing a car, your monthly payments will never stop, and you'll never own an asset. So maybe you're thinking ownership would be the next logical step. A buyout can be a great option because you already know your car. You know exactly how to drive it and what condition it's in, instead of taking your chances on a different vehicle.

Here are different ways you can handle a buyout:

• Save up for the buyout amount and pay cash
• Get a personal loan or use a credit card
• Get a low-interest auto loan

When a Lease Buyout Doesn't Make Sense.

Leasing a car is a popular choice, it could be a good idea for you to keep doing so. Before you hit the buyout button, check whether the following is true for you:

You're at the Start of Your Lease.

Fees may be higher if you break your agreement very early, and it will cost a lot if you need to make all your remaining payments on top of the buyout price.

Check your agreement to see if you need to:

• Pay extra fees or finance charges to end the agreement early
• Cover the balance of remaining payments owed
• Pay any sales taxes

If you have to pay these costs, it may make sense to wait until you are closer to the end of your term. Your leasing company might offer you a buyout about 90 days before it expires.

Your Car Hasn't Gone Up in Value.

Check the residual value of your car in your agreement and the market value of your car through a used car dealership. If the amounts are still about the same, it doesn't make much sense to buy your lease because you won't gain any equity.

You're Not Ready to Own a Car.

One of the greatest benefits of leasing a car is that you can get a new or near-new vehicle, which you might never be able to afford to buy. Generally, these new vehicles don't break down as much as an older car would. As well as that, the monthly car payment on an auto loan is on average $100 more than a lease payment. So make sure you can afford the extra costs that come with car ownership.

Still Wondering When to Buyout Your Lease?

There are pros and cons to both owning a car and leasing a car, so the decision comes down to your personal preference and financial situation. If you started leasing before the pandemic hit, it could be that you have the opportunity to make some quick cash if you sell it to a third party. Alternatively, you have the chance to own your car for a great price.