Leasing with a high or low buyout? Find out which option to choose
Operating leasing (unlike finance leasing) gives you the option to buy out the asset once the contract term ends. You can decide what buyout will apply right at the start, by choosing a lower or higher value for it. Both options have their pros and cons. Read this article to find out which one will be better for you.
What is the leasing buyout value?
It's simply the price you have to pay after the contract ends for the leased asset so that it becomes the property of the lessee. Its amount depends above all on factors such as: the initial payment, the instalment amount and the period of use. In practice this means that leasing with a high buyout will be more cost-effective at the start and during the contract. Leasing with a lower buyout, on the other hand, will be more expensive during use, but its total cost will usually come out lower than in the first option.
Leasing with a high buyout is a form of operating financing that lets you conclude a contract with a low down payment and low instalments.
Leasing with a low buyout is a form of operating financing with a high down payment and high instalments, but a lower total cost.
Is it worth taking a used car on lease with a high buyout value?
As a rule, leasing with a high buyout means lower instalments and a lower initial payment. By choosing this option, you can afford a more expensive car than with an equivalent offer with a low buyout value. It does, however, come with certain restrictions. The lessor has no guarantee that the customer will buy out the car, which is why they usually set a mileage limit, that can be driven during the contract term. If you don't care about taking ownership of the car, it's worth treating such an offer simply as leasing with a low instalment and no final buyout.
Who is leasing with a high buyout for?
It's most readily used by business owners who don't care about becoming the car's owner once the contract term ends. A high buyout in leasing turns out to be most advantageous then, because its instalments will largely correspond to the drop in the vehicle's value. An added benefit is flexibility, which can be especially important for business owners focused on continuous growth. It lets you switch the car for a newer model instead of tying yourself to it permanently and adding the burden of maintaining a fleet on your own.
Leasing with a high buyout | Leasing with a low buyout |
|---|---|
Low instalments | High instalments |
Low initial payment | High initial payment |
Flexibility | Less flexibility |
High total cost | Low total cost |
Risk related to a total loss | Option to buy out even for a nominal amount |
What risk comes with leasing with a high buyout value?
As we mentioned earlier, people who opt for this kind of financing most often don't plan to become the car's owner once the contract ends. This means that in the event of a total loss or serious damage to the vehicle, a basic comprehensive insurance policy may prove insufficient. That's why, when choosing leasing with a high buyout, it's also worth considering purchasing GAP insurance, which in the event of serious damage covers the difference between the payout under the comprehensive policy and the car's initial value.
Can you conclude an operating leasing contract without a buyout option?
No, by definition, operating leasing gives such an option. It's worth stressing that this is an option, not an obligation. At the start you'll set how high the buyout in the lease will be, and only after the contract term ends will you decide whether you want to buy out the vehicle and become the legal owner of the leased asset.