The microchip shortage has been limiting new car production for over a year now, and is not expected to be resolved quickly. While consumer demand for new cars remains strong, vehicle supply is limited, causing prices on new cars to climb to record levels. According to Cox Automotive, the average price of a new car in June, 2022 reached a record high of $48,043.
The new car vehicle shortage has had a big impact on the used car market as well. With fewer new cars available for purchase, demand for used cars has increased, causing used car values to also reach record levels. For consumers that leased a car 2 or 3 years ago, the current value of their car is often thousands of dollars more than their lease buyout price, which was generated at the time the lease began using the historical vehicle depreciation tables. According to Edmunds.com, the average leased vehicle from the 2019 model year is now worth $7,208 more than its projected lease-end value, aka “residual value”.
The buyout price for a car leased 2 or 3 years ago is often much lower than what that same car would cost at a dealership today. This has motivated many people to buy out their lease and capture the equity in their car. This can be a smart strategy in today’s market, as it can generate instant equity in the car that’s already being driven daily, and help drivers avoid paying elevated prices on a new car lease or purchase.
Lease agreements vary across lenders, but most leases include a “purchase option price”, which is the residual value of the vehicle at the end of the lease. Once one has confirmed that their lease allows them to purchase the vehicle at the end of the lease, they should ask their lender for a “buyout quote”. The buyout quote for the lease can often be retrieved online through the lender’s customer portal. The buyout quote will include any applicable taxes and DMV fees in addition to the purchase option price, as well as any remaining payments on the lease. The buyout quote is the amount that needs to be paid to the lender to end the lease and take ownership of the vehicle. Typically the buyout quote is valid for at least 10 days once it is generated.
For drivers coming off lease that don’t have the cash on hand to pay off the buyout amount, there are many options for financing. Most dealerships are willing to convert an auto lease into an auto loan through their network of lenders. For those that would prefer to avoid going into a dealership, local credit unions or banks are also likely to have lease buyout financing available. To save time and do as much as possible online, one can shop for offers using a site like CarReady. CarReady has a simple prequalification form that takes about two minutes to complete. Once the form is completed, CarReady submits the information to their network of lenders and offers are returned to the user. The offers include rates, terms and monthly payments, customized for the individual user’s situation. This can be a simple and quick way to check multiple lenders for the best offer.
Conclusion
Many people coming off of their auto lease are considering buying out their lease. While this can be intimidating, the process is simple and there are many financing options available. CarReady can save users time and help find the best option for them.
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