Why Now Could Be the Best Time to Buy Out Your Car Lease

It's like a time machine for car values.

The COVID-19 pandemic hit pretty much everyone hard, but some places definitely show it more than others. The car market is one of those places.

Whether you're looking for a new card or a used one, the market is absolutely wild. New car inventory has been slim for the last 18 months or so, and it's caused prices to skyrocket. You could easily pay thousands over MSRP -- assuming you can get your hands on the car you want at all.

And the used car market is, if anything, worse. A few years with stunted new car sales mean late-model used cars are hot commodities. Anything made within the last 10 years seems to be selling for close to its original sales price.

With everything so crazy, however, there's one group who could actually come out of this with a big win: leasers. Yes, for once, leasing your vehicle may actually have been the smartest financial decision.

Basics of car leases

Leasing a car is essentially like renting one for a really long time. The length of a car lease can vary, but they tend to range from one to three years. Depending on the lease, you may have to pay some fees and a down payment, then you make regular monthly payments.

Car leases are useful for people who always like to have a new car. The monthly payments are typically lower than what you'd pay if you bought the car, and at the end of the lease you can trade it in for the latest model.

At the same time, leases are frowned upon by personal finance experts because you're making payments but you aren't building any equity. (Sort of like the difference between renting and buying a house.) Moreover, you can't sell the car if you need cash or want to upgrade. And if you want out of your lease early, you'll likely be hit with all kinds of fees.

Despite the downsides, however, the current car market means your leasing contract may include something extremely valuable: the buyout clause.

Buying out your lease

Most car leases include a clause that gives you the option to buy your leased vehicle at the end of your term. Even better, the sales price for the vehicle is typically included in the contract.

In other words, the buyout price for your leased vehicle is set based on valuations made when you start your contract, not when you end it.

With car prices so high right now, the buy-out price in your contract is likely much lower than the current market value of the vehicle. Indeed, a late-model vehicle leased in 2019 or 2020 could potentially sell for the same price -- or even higher -- than it went for brand new.

With your lease's price locked into pre-pandemic values, buying out your lease could save you thousands compared to the market rate.

Keep it, or sell it and lease again

If you do decide to buy your leased vehicle, you have a few options. For one thing, you could just keep it. It's certainly the most affordable way to buy a new (or new-to-you) vehicle right now, and the used car market is likely to remain pretty hot for at least a few years.

Alternatively, you could buy the car -- and then sell it to someone else. Depending on the vehicle and the buy-out price, you could come out ahead by a few grand. At the very least, you could potentially get back what you paid for the lease.

Of course, that then leaves you with no vehicle, and needing to buy a different car in an inflated market isn't ideal. But if you intend to lease another car anyway, then buying -- and immediately selling -- your current lease could make a lot of sense. You skip any turn-in or excess-mileage fees, and you could potentially come out with a bit of profit, to boot.