We got the following question in an email from listener, Ann:
“I am at the end of my lease and I’m going to purchase the car. My question is, where is the best place to go for a small personal loan of $14,000?
My credit score is 760. On Credit Karma I have a ton of offers and the interest rates are about 9.5%. Is that good?”
Matt & Joel’s response: Hey Ann! We’re not huge fans of car leases – and for this very reason. When the lease comes due, you don’t own the car!
But the past is the past… Let’s talk about tips to buy out that lease and where to find the best finance options for used vehicles.
Should you buy out your car lease?
If you like the car, it has treated you well, and it’s in good condition, buying out the lease seems like a very reasonable decision. You’ve gotta have a car to get around after all!
And it’s a particularly smart move if you are way under (or way over) on miles driven. Plus, you know the maintenance history and what repairs the car is likely to need in the coming years.
I’m not sure what make and model we’re talking about, but $14k isn’t an unreasonable sum for a gently used car these days.
Because of the funky car market we’ve had the past couple of years, many folks who leased a car are finding that their car is worth more than the buyout price. Sometimes to the tune of thousands of dollars.
So even if you don’t want to keep the car, buying it so you can sell it and pocket the difference might be advisable!
Tips for buying out the car lease
As for the car purchase, is there any room for negotiation?
Many leases have a no-negotiation clause on the purchase price. But, are there other concessions you might be able to ask for? Discounted financing? Waiving fees or throwing in some future maintenance or oil changes?
It sounds like you’re already weighing the finance options, and we’ll chat more about getting a car loan in a moment. It always pays to shop around and compare lenders against each other.
Also, before committing to a purchase, be sure to look around for market comparisons to ensure you’re not overpaying for the car. You could very well find a new (used) vehicle for the same price point but in better condition.
Getting the best car loan
When it comes to financing a used car, we suggest that you shop around with a local credit union or two. They often offer the best rates on car loans, saving you about 1% on the interest rate vs the big banks.
I’d also go to a site called MyAutoLoan.com. They seem to be the best online car refinance aggregator and they don’t charge some of the pesky fees that other sites charge.
You’re getting quotes close to 10% right now. But you’ve got a top-notch credit score so we think that you might be able to shave that rate down by a few of points.
In general, the higher your credit score, the better the rates you’ll qualify for!
The above chart is from MarketWatch, using recent data from Experian…
Get a short-term car loan
Last piece of advice. It’s not just about getting the lowest monthly payment. We’d love to see you lean towards a shorter loan term.
If you can handle the higher payment, consider a 24-month loan instead of the 36 or 48-month car loan. You’ll pay less overall in interest, but you’ll also own that car free and clear for longer.
This allows you to start saving up for that next vehicle purchase sooner, even if that’s many years away. Hopefully, this car will last you a long time!
Interest rates above 7-8% are starting to enter “bad debt” territory. So you’ll want to pay them off asap, regardless of how long the loan term is.
Related: How to pay off your car loan faster
Don’t lease another car
Not to talk smack, but leasing cars isn’t something we’re fans of.
It sounds like you’re not leaning towards that option Ann, but it’s something we want to point out for other listeners.
Leasing a car does have pros and cons, but in general, it’s best to buy used, reliable cars (with cash if possible!).
The Bottom Line:
Buying the car after your lease ends could be a great move, Ann. If it’s cheaper than your other options of buying a different car elsewhere, go for it!
Getting a new car loan in the 9-10% rate range hurts. But if you shop around and look at credit unions, you might be able to get that rate down a bit. And once you have that loan in place, prioritize paying it off ASAP.
For the full version of this discussion, check out Podcast Episode #814 (it’s the last question we answer in the episode)
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