Find Out What a BMW Lease Buyout Is and Whether It's a Good Idea

bmw on the road after being sold
Learn How a BMW Lease Buyout WorksLeslie Holm / 500px - Getty Images

Leasing can be a convenient and cost-effective way to ensure you're always driving a nice car without having to break the bank to buy it. If you're an automotive enthusiast, it also gives you the chance to drive a new car every few years. With the average leasing period being between two and three years, you can try out multiple brands and models to determine which one suits you better without committing to a purchase.

The chances are that you'll eventually find a car you love so much that you won't want to return it when the leasing contract expires. This happens with some car brands more than with others. With certain vehicles, you may want to upgrade to a newer model at the end of your leasing period. However, that may not be the case with a BMW if you still enjoy driving it after two or three years and find its acceleration and cornering ability impressive. In this situation, learning how a BMW lease buyout works may be useful.

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Buying out your leased vehicle involves paying a specified amount to transfer ownership from the dealership or leasing company to your name. There are objective and sentimental reasons for doing so, but regardless of your specific situation, it helps to know all the facts before making a decision. In this article, we'll explain the basics of buying out your car lease.


BMW Lease Buyout Process

If you decide that your leased BMW is the car for you and want to make it yours, it's important to know the necessary steps to buy it out. This is how you can proceed with a BMW lease buyout:

Wait for BMW to Contact You

BMW will send you a Lease End Mailer 90 days before your lease contract expires. The mailer includes details regarding your options at the end of your lease. Besides buying it out, you can choose to purchase a new BMW or return the car to the BMW dealership where you got it from.

You should also expect calls from your BMW dealership and BMW's Financial Services division asking if you want their assistance in financing your buyout or leasing another BMW. This information is typically available in your BMW online account.

Analyze the Lease Contract to Determine Your Buyout Costs

You can usually find out how much it will cost to transfer the ownership of your leased BMW to your name by reading the lease contract. This information helps you determine whether buying out your current car is a smart financial decision. The buyout cost typically includes the car's residual value, which is a percentage of its initial price, plus additional fees and taxes.

If the expense of transferring ownership to your name is higher than the estimated price of the vehicle on the open market, buying it out doesn't make sense financially. A viable alternative would be to buy the same model after terminating your lease contract. You can find out how much your BMW is currently worth using an online car appraisal tool, such as Edmunds. These tools compare your car to those available at used car dealers and on the open market and calculate a reasonably accurate estimate.

Sometimes a car is worth more to you than it is to anyone else. If you bond with a car and are sure you want to keep it, you may choose to ignore the financial implications and buy it out regardless of whether it's a good deal. However, you still have to make sure you can afford it.

Shop Around for the Best Financing Solution

If you can afford to buy out your BMW lease in cash, then congratulations, you're about to become a BMW owner! If not, then it's time to start thinking about how to get the best financing deal possible. While using your BMW dealer to secure financing is usually the most straightforward option, it's still a good idea to get offers from other lenders and request pre-approvals, even if you don't intend to use them.

After getting several offers, ask your BMW dealer what their terms would be in a buyout financing deal. If the terms that other financial institutions are offering are better than what BMW can provide you, take that information and use it to negotiate a better deal with your current dealer. Since they probably don't want to lose you as a client, they're likely to match the deals others offer.

Calculate the Costs and Sign Off on Your New Purchase

It's important to remember that buying out your BMW involves additional costs, including registration fees and insurance. Before making your purchase official, ensure you know what the extra costs are and that you can afford them. Otherwise, even the nicest car can become a burden.

Is a Lease Buyout Worth It?

The answer to that question depends on your circumstances. Common situations where buying out your BMW at the end of its leasing period can be a good idea are:

  • It's currently worth more than you have to pay to own it. If your current BMW is worth more on the open market than its buyout cost, buying it out is a logical option. You might not intend to keep the car, but even if you sell it the next day, you can still make a profit.

  • A friend of yours wants to buy it. If you buy out the BMW and then sell it to a dealership or random buyer, you'll probably have to pay sales tax. You can boost your profits by selling it to someone you know, as the BMW dealership can transfer the car's ownership via a lease pass-through, which doesn't involve paying sales tax.

  • The car has excessive mileage or wear and tear. Lease contracts usually have strict limits on the number of miles you can drive the car each year and rules regarding its physical state at the end of the leasing period. If your leased BMW doesn't meet these criteria, you'll probably face significant penalties, which may make it more feasible to buy it out, fix it, and keep or resell it.

  • You simply love the car. Finally, you may love your BMW and decide to keep it for many years. Even if it doesn't make sense financially, if you can afford the buyout, no one can tell you that keeping a car you enjoy driving is a bad idea.

Can You Negotiate a BMW Lease Buyout?

The official answer to this question is no, BMW Financial Services doesn't have any wiggle room when it comes to your leased BMW's residual value and other costs associated with the buyout. However, you may consider asking your BMW dealer directly about a better buyout deal. They can get special buyout prices from BMW Financial Services and may agree to offer you a better deal. Although the negotiation margins are usually pretty slim, it's worth trying.

BMW Buyout Fees and Rates

The exact fees and rates you'll have to pay to buy out your leased BMW may vary depending on factors such as the model of your BMW, the terms of your lease contract, and your location. Common fees and rates include:

  • Residual value: Your leased BMW's residual value is its estimated value at the end of the leasing period, which can be higher or lower depending on your monthly payments.

  • Sales tax: Since you're purchasing the car, you may have to pay sales tax on it. The amount varies depending on your state and local laws.

  • Purchase option fee: Many lease agreements include a purchase option fee, which typically means you'll have to pay an extra several hundred dollars if you decide to buy out your BMW.

  • Registration and title fees: As with any vehicle purchase, you'll have to register it with your local Department of Motor Vehicles, which involves additional taxes and fees.

  • Financing fees: If you're financing your BMW buyout, the institution providing the finance will charge you interest and additional fees.

Common Questions about How a BMW Lease Buyout Works

These are some frequently asked questions about BMW's lease buyout process:

How Can I Sell My Car after Buying It Out?

If your BMW's current market value is higher than the cost to buy it out, reselling it makes financial sense, as you can use the profits to help fund your next vehicle purchase or lease. Your main options for reselling your BMW are:

  • Sell it privately. You can potentially get a good price on your BMW by putting it up for sale on the open market. However, this usually involves finding a way to finance your buyout before you resell it to get your money back with a profit.

  • Sell it to a BMW dealership. Alternatively, you can take your BMW to a dealer, and they're likely to offer you a good price for it. If you trade it at a BMW dealership, they will interact with BMW Financial Services directly and make things easier for you. Unfortunately, BMW doesn't do that with dealers of other brands, so if another dealer makes you a good offer, you'll probably have to buy the car yourself and then sell it to that dealer.

What Is a Lease Buyout Loan?

A lease buyout loan is a type of loan that financial institutions offer to people who want to buy out their lease agreements. It's similar to a typical car loan, meaning you pay monthly payments to cover the car's buyout price, plus interest and additional fees. However, it's important to remember that the interest rates for lease buyout loans are usually higher than for regular car loans, as you're buying a used vehicle.

Can I Buy Out My BMW before the Leasing Period Ends?

Yes, you can buy it out before the end of your leasing period. However, besides paying off your remaining monthly payments, you'll probably have to pay an early termination fee.

How Do I Decide between a Lower or Higher Residual Value for My Leased BMW?

Your BMW's residual value is a percentage of its initial price. The residual value and monthly payments must cover the entirety of the vehicle's purchase price, so a lower residual cost means higher monthly payments and vice-versa. Both options have their advantages and drawbacks, and it ultimately depends on what you plan to do with the vehicle.

If you think you'll probably want a new car at the end of this one's leasing period, you should choose the lowest possible monthly payments. However, if you think you might decide to buy out the vehicle at the end of its leasing period, you may consider paying more each month. Although it can be a burden, it will be much easier to secure the financing you require to pay off your BMW at the end of its leasing period.

What Are the Potential Disadvantages of Buying Out Your BMW?

Factors to consider when deciding whether to buy out your BMW at the end of its leasing period include:

  • You may pay more each month than you did before. Your leasing monthly payments depend on factors such as the number of months in your leasing contract, the vehicle's residual value, and its depreciation over time. The car's age and your credit score are other considerations that can result in you paying more each month when you get a car loan to finance your buyout.

  • You won't be able to use some of the perks associated with leasing. Besides benefits such as driving a new car covered by a manufacturer's warranty, some lease deals also offer additional advantages, including free basic maintenance operations. Once you become the car's owner, you'll have to pay for them yourself.

  • The car may depreciate rapidly in the future. BMWs have a reputation as being quality vehicles that typically hold their value for many years, but the car market is unpredictable. In a few years, you may end up paying high monthly payments on a car that's lost much of its initial value.

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