What To Know About Buying Out a Car Lease
So it’s time to return your leased car to the dealership, but you’re not ready to say goodbye. Fortunately, there may be another option: buying out your lease.
Car leases usually allow lessees to either return the car, trade it in for another, or buy it at the end of the lease period. Buying a leased vehicle might be the right move for some people, but it’s not always the best option.
Before you buy out a lease, make sure you’re not wasting your money. There are some things you should know about when you’re considering a buyout, especially when it comes to financing, negotiation, and insurance.
How Does Buying Out a Car Lease Work?
When you buy out your lease, you purchase the car at the end of your lease agreement by paying the dealership the remaining value.
Not all leases allow buyouts, but it’s pretty common. Some contracts even allow you to buy the car before the end of your lease. Most leasing companies have their own unique process for auto lease buyouts.
How Much Does a Lease Buyout Cost?
It depends on a few factors, such as what your car is worth. Check your lease contract to find the residual value, which refers to the expected worth of the car at the end of the lease. This is the base amount that you’ll pay the dealership to take possession of the car.
Then, determine how many payments remain in your lease. If you’re in the middle of your lease, you’ll pay those payments on top of the residual value amount. For example, a car with a residual value of $16,500 with $2,100 in payments left would cost $18,600.
You’ll also be subject to any sales tax your state requires. Your dealership might charge you fees for buying out your lease. However, dealerships also often charge fees to clean and prepare your car for resale when you return it after the lease expires, so you can skip paying those when you buy. To summarize, add up the following costs to learn the lease buyout amount:
The value of the vehicle (found in your original leasing agreement)The rest of the payments in the lease termThe sales tax in your stateThe dealership fees
Financing a Lease Buyout
Like most auto loans, you can finance your car lease buyout if you’re not ready to pay cash. Do your own research because the dealership’s offer might not be your best option.
Contact a variety of finance companies to find the best lease buyout loan with the right terms for your needs. Interest rates can be a little higher on lease buyout loans than a standard auto loan, so getting a good deal can save you some money long term.
You might even use a good deal from one lender as leverage to get a better deal from a competitor.
Tips for Negotiating a Lease Buyout
Most dealerships have minimal flexibility on the lease buyout price, but in some situations, it’s possible to get a better purchase price for your leased vehicle.
If you’re able to negotiate your lease buyout price, it might help to make a convincing argument. Here are some tips to help you advocate for yourself when negotiating a lease buyout with the dealership:
Understand Your Contract
Before you try to negotiate the buyout price, find out who wrote the contract. Most car leases are the work of automakers’ finance departments, also known as captive lenders.
Unfortunately, captive lenders almost never negotiate. If a captive lender wrote your lease, that’s probably the only purchase price available.
If a noncaptive lender like a third-party bank wrote your lease, you might have better luck. These lenders can be more open to negotiation, but it depends on their practices.
Do Your Research
Learn what your car is worth before you even bring up a buyout to your dealership. Find out the market value of your car. If the current market value is lower than the purchase price on your lease, that might be to your benefit.
You can use this information to negotiate for a lower buyout price. Remember that lenders who are open to negotiation might ignore your arguments and present their best offer based on their policies.
Still, it can be a good practice to prepare objective evidence supporting your request.
Negotiate Fees
If you can’t negotiate a better buyout price, you might save money by asking to eliminate or lower the fees. Dealerships might be flexible on transaction or document fees, for example. If you plan on reselling the vehicle for profit, ask the dealer to reduce their fee. Request an itemized list of fees included in your buyout. The only fees that are nonnegotiable are those that appear in your lease. You might be able to compromise on others.
Factors to Consider When Deciding to Buy Out Your Lease
If you’re wondering whether you should buy your leased car, think about the following things:
Mileage
A lease contract clearly states the number of miles you can drive during your lease period. If you’re over your mileage limits, you’ll probably owe a fine when you return the car.
Returning it, paying excessive mileage fees, paying reconditioning fees, and then going through the entire process again for a new lease or purchase might cost you. Buying out your lease can be a sneaky way to avoid paying those high mileage penalties.
Condition
Dealerships typically expect some wear and tear at the end of a lease, but if you’ve accrued damage, it might be smart to buy the car yourself. Dents, stains, cracked mirrors, and chipped paint can lower the car’s actual value.
But like mileage, you’ll likely be responsible for hefty fees to pay for repairs. It might be smarter to absorb the cost yourself and buy the car, especially if the damage doesn’t bother you. You can always repair it later.
Satisfaction
Before you commit to buying your vehicle, think about if you’re happy with it. Does it suit your lifestyle? For example, a frequent traveler might need a car that performs well on long trips.
A growing family might need a spacious SUV with a suite of safety features. Research other cars to learn if there’s a model that might be a better fit for you.
Price
Once you know the total buyout price, assess it realistically. Review your options for financing and determine if the monthly payments can fit into your budget.
This might also be a good time to think about other lease-end options, like trading the car in for another lease, returning it and buying a new model, or buying a used car from a dealership or independent seller.
It’s important that you can afford the option you commit to, but it’s also important to feel like you’re making a worthwhile investment.
Timing
Even if you’re certain you want to buy out your lease, buying at the right time might save you money. There are two types of buyouts: an end-of-lease buyout and an early lease buyout.
As you might guess from the name, an end-of-lease buyout happens when your lease expires. An early lease buyout is a purchase that occurs before the end of the lease. Every lessor handles these buyouts differently, but they might be subject to additional fees.
Review your contract and talk with your leasing company to learn what the better option is for you.
Lease to Own Car in 4 Steps
Let’s say you’re ready to sign the deal. Here’s a step-by-step guide to buying out your lease:
1. Tell your leasing company you want to buy the car
Inform your leasing company or dealership that you’re ready to buy out your lease. Make them an offer according to your research and assessments of the car’s current market value. Ask questions you have about the buyout process.
You might wait for the lessor to approach you. Most companies contact lessees to discuss end-of-lease options a few months before the contract expires. You might have more leverage for negotiations if they’re unaware you’re planning on buying it out.
2. Negotiate what you can
While many elements may be rigid according to your lease, ask the leasing company or dealership to waive or lower any fees.
Use your research to justify your argument. It’s often possible to negotiate down the purchase option fee, for example.
3. Arrange financing
If you’re planning to finance a new vehicle, choose the right lender for your auto loan. This might mean weighing different financing options to find one with the right terms, such as:
Favorable interest rateDesired auto loan terms, like 24, 36, 48, 60, or 72 monthsRealistic monthly payments
If you get a better offer from a third-party financial institution like a bank or credit union, tell your dealership. They might make a counteroffer that beats it.
4. Evaluate your insurance
Tell your insurance company that your lease is over and you want to purchase the vehicle. Revisit your policy to see if you can save money now that you have different terms.
If your lease contract required extensive coverage or a low deductible, you might adjust your policy to better suit your needs. You might also weigh your options from other insurance companies to see if you can get a more affordable premium.
When Not to Buy Out a Lease
You love your car, but sometimes it’s not worth it to buy out a lease. Buying out a lease is a big decision, so it’s important to choose wisely. Here are some circumstances in which you really might be better off returning the car to the dealership:
When the car’s in poor conditionWhen you can replace it at a better priceWhen the car has high mileageWhen you’re unhappy with the car
Important Takeaways
To summarize, buying out a lease can be beneficial depending on your circumstances. Remember the following things when weighing an auto lease buyout:
Buyouts make sense if you like your car and can afford to buy it.You can buy out a lease when the lease period ends, or before.Financing is available, and you should talk to a variety of finance companies to get the best terms.While the residual value of a car is unlikely to change, you can argue for reduced fees.Do your own research to learn your car’s market value before deciding to buy out your lease.
Elizabeth Rivelli is a freelance writer with more than three years of experience covering personal finance and insurance. She has extensive knowledge of various insurance lines, including car insurance and property insurance. Her byline has appeared in dozens of online finance publications, like The Balance, Investopedia, Reviews.com, Forbes, and Bankrate.
