Car Lease Buyout: How Does It Work?

Maybe you weren’t sure if you’d really like the car when you first got it. Maybe you weren’t sure that it would suit you in a few years. Whatever your reason for leasing a vehicle, if you’re considering buying it now that your lease is up, here’s a guide on when to consider it — or avoid it — and how to get the best deal. For many drivers, the end of an auto lease can mean saying goodbye to a car you love and signing a new lease agreement. But there’s another option: an auto lease buyout. A lease buyout loan lets you buy the car you’re already driving from the leasing company for a predetermined price. Sound interesting? Here’s what you need to know about lease buyouts.

What is a Lease Buyout?

A lease is often equated to renting a car, but a better analogy might be renting an apartment. When you lease an apartment, you’re buying the right to use it for a certain period of time. The same is true for car leasing. However, unlike most apartments, when a car lease is up, you can’t sign for more time you can either turn the vehicle in or buy it. Buying your leased car is called a buyout. It can be done by paying cash or by obtaining a loan the way you would for any car purchase.

Take A Fresh Look At Your Lease Contract

Start by reviewing your original leasing agreement to determine how much it’ll cost to purchase your car. Your leasing agreement should outline the residual value, or the purchase option price. If you choose to keep the car, you’ll need to pay the residual value amount, plus any applicable taxes and Department of Motor Vehicles (DMV) fees. You may also pay an administrative fee that’s
predetermined by the leasing company, to cover transaction costs.

Keep in mind that depending on the make, model and specifics of your leasing deal, your car may be worth more or less than the residual price on the open market.

The residual price: Is based on previous sale prices for that specific make and model. Reflects the car’s demand. A popular make or model usually commands a higher residual price.Is typically nonnegotiable.

Run a simple search of used-car sites, such as Edmunds.com, Cars.com or Kelley Blue Book (kbb.com), to see how your vehicle’s lease buyout price compares to the open market.

Three key lease buyout considerations

If you’re happy with your car’s residual price, ask yourself if these other aspects of the deal work for you.

Have I exceeded the mileage agreement terms? If you’ve gone over your lease’s mileage limits, you’ll be subject to per-mile penalties that can add up when your lease comes to an end. For example, if you’re 10,000 miles over your lease’s mileage limit, you could pay a penalty as high as $2,500. That’s money that could be put toward buying out your lease.

Is the car in good condition? When you return your car, it’ll be inspected. While most leasing companies allow for imperfections due to everyday use, above-average wear and tear can cost you. These fees can range from hundreds to thousands of dollars.

How much will it cost to maintain? Check out independent research, like Edmunds’ True Cost to Own® reports, for your make and model. Factor these expected ongoing costs into your decision to purchase your leased vehicle.

Lease-End vs. Early Buyout

Most people wait until the end of their lease to buy their vehicle, but it may be possible to buy earlier, depending on your contract. However, there are typically several disadvantages to an early buyout.

One

Early termination fees. In most leases, there are fees if you decide to end the lease early. These could be high, depending on your lease contract. If you wait until lease-end to buy the car, you won’t face the early termination fees.

Two

Higher payments. Some people prefer leasing because payments are generally low, perhaps allowing them to get a newer or better car than they could otherwise afford to buy. After a buyout, your payments might go up, so waiting until lease-end keeps the lower payments going longer.

Three

Taxes: When you first lease a car, you have to pay sales tax, license and registration fees, even though the car is not registered or titled in your name. Buying your leased vehicle means the registration, license and titling are all changing, so you have to pay for all of it again. The longer you wait to buy the car, the less the car will be worth, the lower the total amount of taxes and licensing fees.

6 Things To Consider when Buying Out A Car Lease

1. If you love the car.
2. If it’s affordable.
3. If you treated it well.
4. If you would be charged high fees for turning it in.
5. If it still matches your lifestyle.
6. If it’s worth more than what your contract says.

5 Things To Avoid When Buying Your Leased Vehicle

1. 1. If the car doesn’t match your needs.
   2. If it isn’t affordable.
   3. If it was damaged.
   4. If it’s worth less than what your contract says.
   5. Higher APR.

Lease (or buy) another vehicle from the same brand:

Many manufacturers will incentivize returning lessees to choose another vehicle from their brand. In addition to financial incentives such as loyalty rebates, some will waive the last few lease payments to help clients get into the newer model before their lease is over.

Lease (or buy) another vehicle from a different brand:

Part of the fun of leasing can be the flexibility to drive a different car every few years. Some manufacturers will even offer rebates & incentives to current lessees of competing brands. These can make trying a new brand easier. (For more on our most leased brands see Which car brands do people lease or buy?)

Special order exactly what you want:

Regardless of whether you stay with your current brand, it can often make sense to consider special ordering your new vehicle. Ordering allows you to get exactly the features you want on your new car—and avoid paying for other features you don’t want. We particularly recommended ordering European vehicles that can be configured in literally thousands of ways. Talking to your AMG CARS INC consultant three to four months in advance will give you time to determine if ordering will be a good strategy for you.

Seal the deal

If you decide to obtain a lease buyout loan from a bank or other finance source, you may first need to contact the leasing company to confirm the process for ending your lease. From then on, your lender’s loan officers can help you determine the loan amount based on your leasing agreement and work with your leasing company directly to facilitate the buyout. When you finance this way, you’ll likely be responsible for settling any fees with the DMV.

Now that you know what’s involved in an auto lease buyout, it’s much easier to make a smart decision that works for your budget and lifestyle–and perhaps buy that great car you’re already driving.