Thinking of Keeping Your Leased Car? Your Canadian Guide to Buying Out Your Lease

So, you're nearing the end of your car lease, and you've grown quite fond of your ride. Maybe it's served you perfectly, the kilometres are low, and the thought of giving it back just doesn't sit right. Good news! In Canada, you absolutely can keep your leased car. It's called a 'lease buyout' or 'exercising your purchase option,' and it's a common path many drivers take.

Let's break down what it means to buy out your leased car and if it's the right move for you.

Why You Might Want to Keep Your Leased Car

There are several solid reasons why keeping your current leased vehicle might be more appealing than returning it or starting a new lease:

• You Love It: This is probably the biggest reason! You're comfortable with the car, its features, and how it drives.
• Known History: You know exactly how the car has been maintained (or not) and its accident history (if any). No surprises with a used car from an unknown source.
• Low Kilometres: If you've driven significantly less than your lease agreement allowed, you've essentially 'overpaid' for the kilometres you didn't use. Buying it out lets you capitalize on that unused value.
• Excellent Condition: If your car is in great shape, you avoid potential wear-and-tear charges from the leasing company.
• Avoid the Hunt: Searching for a new car, dealing with negotiations, and figuring out new financing can be a hassle. Keeping what you have is simpler.

How a Lease Buyout Works in Canada

At the beginning of your lease, your contract included something called a 'residual value' or 'buyout price.' This is the pre-determined amount the leasing company believes the car will be worth at the end of your lease term. It's the price you agreed upon if you wanted to purchase the vehicle.

When you decide to buy out your lease, you're essentially paying this residual value, plus any outstanding fees, taxes, and sometimes a purchase option fee. This converts you from a lessee to the proud owner.

Understanding the Numbers: Residual Value vs. Market Value

This is where your financial savvy comes in. Before you commit, it's smart to compare your car's residual value to its current market value. Here's why:

• If Residual < Market Value: This is a great scenario! It means your car is worth more than the buyout price. You've got 'equity' in the vehicle. Buying it out would be a smart financial move, as you'd be getting the car for less than it's currently worth.
• If Residual > Market Value: This means your car is worth less than the buyout price. You'd be paying more than the car's current worth. In this case, it might be better to return the car and look for another vehicle, unless you have strong non-financial reasons (like sentimental attachment) to keep it.

Remember to factor in provincial sales tax (PST/HST) on the buyout price, as well as any other administrative fees your leasing company might charge.

Financing Your Lease Buyout

Once you've decided to buy out your lease, you have a few options to pay for it:

1. Pay Cash: If you have the funds readily available, paying cash means you avoid interest charges and own the car outright immediately.
2. Get a New Car Loan: Many Canadians choose to finance their lease buyout with a new car loan. This is essentially like taking out a used car loan for the residual value. This can be an excellent opportunity for credit building, as you'll be making regular payments on a secured loan. Lenders like SkipCarDealer.com can help you find competitive rates for your lease buyout loan, often even if your credit isn't perfect.

Keep in mind that interest rates for used car loans can sometimes be a bit higher than for new car loans, but it's worth exploring your options. A good credit score will always help you secure better terms.

Pros and Cons of Buying Out Your Lease

Pros:

• You keep a car you know and trust.
• No need to worry about excess kilometre charges or wear-and-tear fees.
• You avoid the immediate depreciation hit of buying a brand-new vehicle.
• It can be a good way to build or improve your credit history with a new loan.
• Potentially a good deal if the residual value is lower than the market value.

Cons:

• You'll own an older vehicle, which might start requiring more maintenance soon.
• You might pay more than the car's market value if the residual is high.
• Interest rates on used car loans can sometimes be higher than new car loans.
• You miss out on the latest safety features or technology of a brand-new model.

Steps to Take for Your Lease Buyout

If you're leaning towards keeping your leased car, here's what to do:

1. Contact Your Leasing Company: Get an official, written buyout quote. This will detail the exact residual value, any purchase option fees, and applicable taxes.
2. Assess the Market Value: Research what similar cars (make, model, year, kilometres) are selling for in your area. Use online tools and local dealership listings.
3. Arrange Financing: If you're not paying cash, start looking for a car loan. This is where a service like SkipCarDealer.com can be incredibly helpful, connecting you with lenders who understand lease buyouts and credit building needs.
4. Complete the Paperwork: Once your financing is approved, you'll sign the necessary documents with your leasing company and the lender. The car's title will be transferred into your name.

Deciding to keep your leased car can be a fantastic option, especially if you love the vehicle and the numbers make sense. Take the time to do your research, understand the costs, and explore your financing options to make the best decision for your driving and financial future.