Why You Should Consider Buying Your Leased Car

Why You Should Consider Buying Your Leased Car

You might have equity in your leased vehicle. Soaring prices for used cars mean the buyout price could be lower than its market value.

If you’re nearing the end of your lease, it might make sense in the current market to purchase the vehicle from your leasing company. Most contracts include a provision to buy the vehicle at a precalculated price set at the beginning of the lease. In normal times, it’s usually not such a good deal, but with new and used cars in short supply and prices surging, the buyout price might represent huge savings and actual equity in the vehicle, if you turned around and sold it to a third party.

“There was no way for the folks that drew up leasing contracts a few years ago to know that those cars would be valued so high today,” says Jake Fisher, senior director of Consumer Reports’ Auto Test Center. “That means they likely already agreed to sell you a car for far less than what it’s worth today.”

For example, Jen Stockburger, director of operations at CR’s Auto Test Center, noticed that the buyout price for a 2018 Subaru Impreza she was leasing was much less than the car’s market value when she first checked the price about two months ago. She decided to buy out the lease for $15,760 after a quick online search showed that CarMax would give her $18,000 for it—a more than 14 percent premium. She may have been able to sell it for more in a private sale, but she ended up keeping the car. Stockburger checked again for this article, and as of July 23, CarMax was offering her even more—$18,400, or almost 17 percent higher than the lease buyout price.

“I could just as easily have bought out the lease and then unloaded the car and made some money,” Stockburger says.

According to data from TrueCar, a firm that tracks the automotive industry, and a CR partner, used car prices were up 35 percent in June of this year compared with June 2018, when many of the calculations for cars coming off lease now were being made. “There is a strong relationship between buyouts and used prices,” says Nick Woolard, an analyst at TrueCar. “When used prices are weak, more customers walk and let the dealer keep the vehicle.

Why Prices Are High

When car leases end, a lot of consumers simply choose to turn in the vehicle and lease another new vehicle from the same automaker. But the math has changed lately because of the pandemic and because a global shortage of microchips needed in new cars that has pushed up prices for vehicles new and used.

While everyone was stuck at home last year, not buying cars, the semiconductor manufacturers that supply automakers with the microchips they need to build cars were in a quandary as car companies shut down production lines to keep workers safe and to grapple with the sharp drop-off in demand for new cars. It’s rarely good for any company to have unused stock sitting around, but fortunately for the semiconductor manufacturers, demand for the chip-hungry products that people were using at home—TVs, tablets, smart appliances and the like—soared. The chip companies found a home for their product.