By Jason Siu
What to Expect When Buying Out a Lease and How to Avoid Getting Scammed
Buying out your leased vehicle shouldn’t be a hassle, but some dealerships seem to make it as difficult as possible.
So, you’re nearing the end of your lease term and you’ve managed to keep the car in good condition with low miles. You take a look at the residual value originally agreed upon when you leased the vehicle and decide it wouldn’t be a bad idea to just buy out your lease.
Typically, buying your lease should be a painless process, especially if you are not planning to finance the car. You can simply send a full payment for the buyout value to the automaker’s financial services company and in a couple weeks, you’ll receive the title. From there, you’ll have to head over to the local Department of Motor Vehicles (DMV) to get everything squared away. Keep in mind, however, that you will have to pay taxes on the purchase price of the vehicle.
ALSO SEE: Should You Buy Back Your Leased Vehicle?
If you’re planning to finance the car, however, you don’t necessarily have to get financing through the dealership. Check with your local bank or credit union to see if they offer competitive interest rates before heading to the dealership to see their options.
Now, if your only option is to head back to the dealership for financing, there are a few things to keep in mind to avoid getting scammed. Some dealerships will tell you that your car must undergo a mandatory inspection and service before they are able to sell the vehicle to you. They’ll cite “liability” reasons, but that doesn’t make a whole lot of sense considering you’re the one that has been driving the vehicle for the past few years.
In fact, no one knows the history of the vehicle better than you and you likely know it’s safe to drive. So why would a dealership insist you do an inspection anyway? Some shady dealerships want to charge you for the inspection and service, and they’ll likely try to force you into some unnecessary fixes before they will sell you the vehicle. Believe it or not, there are actually dealerships that refuse to let you buy out your lease until you pay for the inspection and service.
SEE ALSO: Top 10 Reasons to Lease A Car
So how do you avoid being forced into an unnecessary inspection? Simply go to another dealership that doesn’t require the inspection and service. If the dealership you’re at is requiring the inspection before letting you finance the vehicle, your best option is to walk out the door and find one that is honest and willing to work with you.
Another practice you might run into when financing your lease buyout from a dealership is an up-sell tactic in the form of an extended warranty, alarm, or other coverage. Naturally, an extended warranty isn’t a terrible idea if you plan on keeping the vehicle for a few more years, but some dealerships will tie that to a lower interest rate. For example, when discussing your options for the buyout, the dealership might only present its own financial services (i.e. Honda Financial Services) as your option. Most times, the interest rates won’t be as competitive as those from an outside bank or financial institution, but, of course, they might make it seem like the only option.
Once you’ve agreed on everything, however, and you’re working with the finance department on the paperwork, new options will magically appear with lower interest rates, but only if you purchase one of those additional services or warranties. The dealership will tell you that one of those items are necessary to secure the lower rate from the third-party bank since they want “peace of mind” about the vehicle they’re financing.
Whether that’s true or not can be debated, but you do have a choice here. Calculate whether the reduction in the interest rate saves you more money than what you’re having to pay for the extra warranty coverage or alarm. It may work out to your advantage to just agree on an extended warranty and getting the reduced interest rate. Unfortunately, chances are the dealership won’t give you the reduced rate unless you agree on purchasing one of those options.
ALSO SEE: Should You Buy or Lease a Car?
If you’re really lucky and find a dealership that’s more ethical and honest, they may even negotiate the final buyout price of the vehicle and include an extended warranty coverage free of charge. Like the typical car buying process, you should pay close attention to all the paperwork and numbers being laid out to you before signing any dotted lines. Most importantly, however, don’t feel obligated to return to the same dealership that you originally leased the vehicle from. If you’re getting the sense that they’re trying to scam you out of a few hundred or even thousands of dollars, leave the dealership and find another one that’s more honest.