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Leasing enables many people to drive brand new vehicles, and they can take advantage of the benefits such cars and trucks offer, such as low maintenance.
Leasing has been compared to renting a car for a specific period of time. A person is allowed to use the vehicle, but must return it after a few years in very good condition. Lease payments may be considerably lower than financing rates, and some people may be able to lease a particular make or model that would be out of reach otherwise.
According to the latest Lease Market Report from Edmunds.com, more new vehicles were leased during the first half of 2016 than during any other such period in history. Lease volume has doubled in the last five years, with millennials and seniors leasing more vehicles than any other demographics.
At the end of a lease, people have the option of turning it in and starting a new lease or buying out the lease. Lease buyouts might be the right fit for some drivers.
Types of buyouts
The Department of Motor Vehicles says there are two buyout options. These include a lease-end buyout and an early buyout.
With a lease-end buyout, the lessee pays the residual value of the vehicle at the end of the lease contract. It is the most common of the options. Drivers can look at their lease agreements to see what the residual amount was calculated to be. Then they can use an automotive price comparison tool, like those offered by Kelley Blue Book or Edmunds, to see if the amount is comparable to the private-party selling price, or the true market value of that vehicle. If the amount is less or very near to the value listed, it could be worth it to engage in a lease-end buyout.
The other buyout option is an early lease buyout. This gives lessees the option to purchase the leased car or truck before the end of the contract. Calculating if the value of the vehicle makes such a buyout financially feasible can be more challenging because one still has to factor in depreciation, the amount of money still owed on the lease and what the current market value of the vehicle would be.
Reasons for buyouts
There are many reasons to choose a lease-end or early buyout. If the vehicle is in poor shape or if drivers have exceeded the mileage limits on the lease, thereby incurring penalties, it may be smarter to buy out the lease.
Others may have maintained their leased vehicles and liked the cars so much so that they want to keep on driving them.
Buying out a lease can sometimes make the most financial sense for drivers.