4 Situations When You Should Consider a Car Lease Buyout

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Updated on Thursday, June 3, 2021

If you’re nearing the end of your lease, you’re probably considering a lease buyout. But is that to your best advantage? Some easy math could point the way. We’ll break down how a lease buyout works, when it is — and isn’t — to your advantage and whether a lease buyout is worth it.

How a lease buyout works

Purchasing a lease is called a buyout whether you pay in cash or get a lease buyout loan. The car’s residual value, listed in the original lease contract, is its buyout price. You could also find the buyout price by calling your leasing company or looking at your online lease account.

Once you know its price, you could simply pay the amount in cash to the leasing company and have its ownership officially transferred to you or line up an auto loan. Not every auto lender offers a lease buyout loan, which is considered different from a new, used or refinance car loan.

What to consider before buying out a lease

There are some emotional components to buying a car –– feelings of attachment to your leased vehicle versus the desire to purchase a shiny, new one, for example. You’ll have to take those into account on your own, but we can help with the money math.

Affordability

Check whether buying your leased car is affordable by using an auto loan calculator. One of leasing’s biggest appeals is a low monthly payment. If the vehicle is still worth a lot, the buyout loan payments could be more than you expect.

Price vs. value

The residual value is an estimate of what the car will be worth at the end of the lease. The car’s actual value may be more or less. If the car is worth more, then your residual value is effectively a discounted price! To know whether you’re getting a good deal, compare what you’d pay to buy the lease versus what the car’s worth. We’re not going to take taxes into consideration yet.

Lease buyout price = Residual value + any excess mileage and wear feesvs.Lease value = Current Kelley Blue Book price

Example of a good lease buyout

If the residual value is $19,000, you have $300 in excess wear charges and the KBB value is $21,000, then you’d be getting a good deal, paying $1,700 less to buy the car than what it’s worth.

Example of a bad lease buyout

Imagine your residual value is $15,000 and you have $800 in mileage overage fees. But the car is only worth $13,000 according to Kelley Blue Book. In this case, you’d be paying more than the car is worth to buy it, a $2,800 premium.

You could do a more specific analysis comparing the lease buyout to a vehicle you may want to buy instead by looking at the lease buyout price versus the new vehicle price, including any rebates you may qualify for and any taxes.

Potential damage

Another way the car could be worth less is if it were damaged while you leased it. If it got hit in a car accident or a storm, it will be considered less valuable because it was damaged, even if that damage was repaired. The negative impact on its value (and thus its price) only affects the owner — don’t buy it and become the owner.

Taxes and government fees

In a lease buyout, you may have to pay taxes and fees, just as you would if you bought any car. Yes, you may have already paid taxes on it when you first leased the vehicle, but the official owner was the leasing company, not you. And now the vehicle is switching owners. The title and registration will change, meaning you might have to pay such expenses (again), depending on your state. However, you would wind up paying the same type of fees if you get a new lease or purchase a different car altogether.

Manufacturer fees

A few cents per mile can add up quickly. The same can be said of wear-and-tear charges. If the manufacturer is going to charge you for excess mileage and wear-and-tear damage to the tune of a few thousand dollars, you may be better off buying the car to skip the fees. If you manage to not incur any or have a low dollar amount of fees, it may not matter as much.

Whether the car matches your needs

Maybe you moved to Chicago and need a car with AWD or your growing children will find the back seat of your leased car to be a smidge constraining soon. If such a scenario applies, take advantage of your lease end to get a different vehicle that fits your needs not only now but for the foreseeable future.

Alternatives to buying your lease

Leasing companies offer a few options at the end of a lease, depending on the company: Return the car, replace the car with a new lease or purchase, re-lease the car or buy the car. If none of those options sound great, there’s another avenue in which you could skip the fees and not buy the car yourself: a third-party buyout.

Advertise the car for sale or find a friend who wants to buy it and then that person could do the lease buyout through you. Some manufacturers will facilitate a third-party buyout. And, depending on your state, you may be able to buy out your lease, turn around and sell it within a few days and not have to pay the taxes. If you decide to do this, be sure to check with your state’s Department of Motor Vehicles, your leasing company and a dealer or manufacturer to be clear about the laws and processes you have to follow.

Is a lease buyout worth it?

A lease buyout could definitely be worth it. You might want to buy the car if you have a great price on it compared with what it’s worth or if you incurred high fees. You might want to skip out on purchasing the vehicle if it is worth less than its residual price or it was damaged.