Tag Archives: Leasing

Car Lease Buyout Options: Know the Pros and Cons

This entry was posted in Car Buying Advice and tagged , , on by .
Car Lease Buyout Options Know Pros and Cons - Red Mountain Funding

It can take years to find your perfect car. Once you have found it, you’ll never want to let go. If you leased your dream car and have decided that you want to buy it, it is important to know whether you are making the right choice and how to correctly go through the process.

Lease-End Buyout

There are two types of lease buyouts:

  • Lease-end buyouts
  • Early lease buyouts

A lease-end buyout is the more common of the two. With this option, you will pay the residual value at the end of your lease. A vehicle’s residual value is what the car is expected to be worth at the end of the lease. This car lease payoff is negotiable before you sign the contract; you agree on it before the lease begins.

There are two variables to consider in determining whether a lease-end buyout is a good deal. It is imperative to compare the residual value to the true market value. The true market value is the amount that the car is worth on the market today and the price that a vehicle in similar condition is being sold for.

If the price for the buyout is less than the true market value, it is a financially profitable choice. However, you should also consider:

  • If you’re happy with the car’s overall performance.
  • Has needed many repairs throughout the duration of the lease?
  • If there is another car on the market at a similar price that you would prefer.
  • Can you finance the buyout at a good interest rate?

Are all of these factors are favorable? Then it is a smart deal to do a lease-end buyout. You will also need to pay lease payoff sales tax, but it will be worth it. It can be safer to do a lease-end buyout than to buy a new car, because you already know the car and its history.

Early Lease Buyout

Car Lease Payoff Market Value Vs Residual Value Chart - Red Mountain Funding AZThe second option for a lease buyout is to do a car lease payoff before the lease ends. Not all dealerships offer early lease buyouts, and some have certain additional stipulations. So be sure to check your contract before deciding to pursue this option.

Determining the price of an early lease buyout can be more complicated than trying a lease-end buyout. The dealer calculates the price based on:

  • The lease-end residual value on your contract
  • The amount left to pay on your lease
  • Any depreciation to the car if its value has dropped beneath the current market value

One of the reasons that many people pursue an early lease buyout is because they are worried about lease penalties. Lease penalties could include:

  • Going over the allowed mileage
  • Not maintaining the car properly
  • Damage to the car

An early lease buyout is usually not recommended because of the added fees that come with the depreciation of the car.

Determining the Market Value

For both lease-end and early lease buyouts, determining the market value of the vehicle is a vital part of making the final decision. The current retail price will indicate whether you should buy your lease out or purchase a different car.

Determining market value is a fairly simple process because of the extensive information available online. Great resources include sites such as:

  • Cars.com
  • NADAguides.com
  • Edmunds.com
  • AutoSite
  • Autopedia
  • Kelly Blue Book
  • CarPrice.com

The price of the vehicle will vary from site to site, so make sure to visit as many sites as possible to get a more thorough idea of the value.

If the car that you leased is extremely popular on the market, your residual cost will likely be lower than the retail price to buy a different one. In this case, buying out your lease makes more sense than purchasing a different car, because few dealerships are going to offer a similar deal for buying a vehicle outright.

The reality for most people, however, is that the lease payoff quote will be higher than the retail price. Many banks and financing companies inflate the residual price for a leased vehicle, so they are able to offer lower monthly payments for people who leased their cars.

The price of used cars has also been down recently, which often makes buying a different car the more affordable option. Used cars in Mesa, as well as other Arizona used car trade-ins, are no exception to this trend.

Negotiating with the Lender

Paying off a leased vehicle can be a negotiation, so it is important to maintain a powerful position in the interaction. Don’t call the leasing company and ask about buying the lease; let the lender contact you. 

Once the leasing company has called you, try not to appear overly enthusiastic or eager. First, tell them that you are going to turn in the car after the lease. After waiting a moment, follow it up by explaining that you think the residual value is too high to justify the buyout. Some larger companies do not allow any negotiation, so this tactic will be more effective with smaller companies.

Help and Guidance for Car Lease Payoffs

If you are considering buying out your lease, Red Mountain Funding can help you. We are a family company that has been helping lower-income families and individuals in Arizona with loans for over 20 years. Contact Red Mountain Funding for advice and assistance in buying out your lease.

Read Used Car Purchasing Tips

Planning a Car Purchase from a Financial Standpoint

This entry was posted in Financing and tagged , , on by .
Planning A Car Purchase From A Financial Standpoint - Red Mountain Funding

Your vehicle, after your home, is one of the largest purchases you’ll ever make. For this reason, it’s a decision that merits careful consideration and planning. While you may be tempted by the latest models and gadgets, one of the biggest mistakes prospective car owners make is buying a vehicle with monthly payments that are higher than they can afford.

Obtaining used car financing in Arizona requires preparation on your part. Here’s what you need to know.

The Best Way to Buy a Car

If you ask a financial planner the best way to finance or buy a car, they’ll likely tell you, “Buy it new, buy it with cash, and keep it for as long as possible.”

While this may hold true in terms of interest, it’s not feasible for most people. Considering that economic models of SUVs start at $30,000 or more, and you’ll find that the majority of people don’t have that kind of cash lying around.

The next and the most popular option is financing. How much you can afford should be pretty obvious if you’re paying in cash, but becomes murkier when you have a monthly payment. There are a few important considerations when choosing a car with a monthly payment.

Financing Term

First, you’ll have to decide how long you want to take to pay it off. Financing arrangements exist in 3-, 5- and 7-year terms, though some may offer other arrangements.

Generally, you don’t want a term longer than 60 months (5 years), since it increases the chances of being underwater or owing more than your car is worth. A longer arrangement may mean that your monthly payments will be lower, but you’ll also be paying more interest. Opt for a good balance between the features you want and a monthly payment you can afford.

What’s a ‘Good’ Monthly Payment?

Everyone’s financial situation is different, so the answer to this question is unique. Ideally, after factoring in the cost of insurance and maintenance, you should still be able to save at least 10 percent of your income each month. If this isn’t possible, your monthly payment is too expensive.

Keep in mind that if you’re financing a car, your insurance payments will reflect it. Generally, insurance companies require more comprehensive coverage on vehicles that have financing attached. Ask your insurance company for a new quote and add these to your calculations.

New vs. Used

Many people find that in light of these circumstances, they cannot afford a new car. Used cars are frugal alternatives that come in many shapes, sizes and prices.

For a couple of thousand dollars, you can buy a vehicle that will get you from point A to point B, but may require more maintenance. Spend up to $10,000 and you can actually get something pretty nice. When purchasing a used car, factor the cost of maintenance into your budget.

Arizona Used Car Loans vs. Leasing

There are advantages and disadvantages to leasing and buying vehicles. With a lease, you’re getting the latest and greatest, but you won’t own it – so you’ll always have a car payment. You’ll also be locked into a certain number of miles each year, so long trips may be out of the question.

With a used car loan, you’ll own your vehicle at the end of the financing term without having to worry about additional payments other than maintenance.

Other Financial Considerations When Planning a Car Purchase

Once you’ve decided what you can afford and how you’re going to pay for it, the next important consideration is when to buy. You can save significant money purchasing a vehicle at certain times. Shopping on the last day of the month, for example, can save you significant money because dealerships must meet certain quotas to receive incentives from manufacturers, and salespeople must make minimum sales per quarter.

When purchasing a vehicle, a dealer may also try to sell you extras like an extended warranty. Unless your chosen vehicle has well established mechanical problems, these aren’t necessary. Rust proofing and paint protection are other examples of “extras” that don’t make much financial sense to those on a budget.

When You’re Ready to Buy a Vehicle

When you’ve made a decision based on your financial situation, it’s time to start shopping. If you’re still not sure what you can afford, come in and speak with the financing experts at Red Mountain Funding. We’re here to make the approval process simple and get you into the car that’s right for you.

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