How to figure out a lease buyout in 4 easy steps

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How to figure out a lease buyoutanucha sirivisansuwan - Getty Images

Are you nearing the end of your vehicle lease and not sure what to do next? A car lease buyout could be a good option if you love your car and aren't ready to return it.

Perhaps the car is in excellent condition and doesn't require significant maintenance or repair services. Or maybe you've grown accustomed to its reliability and need long-term transportation. Alternatively, a lease buyout might make financial sense if the car's residual value is less than the market value. Before you buy out your car lease, consider additional factors, such as timing and finances, to help you decide.

Eager to begin the lease buyout process? Start by applying for auto loans to help you finance your purchase. You can easily compare loans from different lenders below:

What Is a Lease Buyout?

A lease buyout is when you purchase your leased vehicle before or when the lease term ends. To do this, you pay something known as the buyout cost. This is equal to the residual value the leasing company estimated the vehicle would be worth at the end of the lease term, along with any taxes, fees, and remaining lease payments due. Before you begin the lease buyout process, double-check your lease agreement to make sure this option is allowed.


How Does a Lease Buyout Work?

Understanding how a car lease buyout works and what to expect can help you make the right decision as you near the end of your car lease. There are two lease buyout options that determine when you can complete the buyout process:

Lease-End Buyout

If a buyout option is available in your lease contract, this typically means you can purchase the vehicle at the end of the lease. You might consider a lease-end buyout option if you like your car and don't want to hassle with starting a new lease or buying a new car. Instead of returning the car to the leasing company, you buy it and assume ownership. You might also want to pursue a lease-end buyout when it makes financial sense. This is typically when the car's market value is higher than what you'd have to pay to purchase it.

Early Lease Buyout

An early lease buyout involves purchasing the vehicle before your lease contract ends. This option is less common and can be expensive if your leasing company applies early termination fees on top of the car's buyout price. However, it might be your best option if you're worried about excess wear and tear or mileage fees associated with violating your lease contract.

How to Calculate a Car Lease Buyout in Four Easy Steps

Here are some simple tips to follow to calculate your car lease buyout amount:

  1. Determine the residual value of the car. The car's residual value is its expected worth at the end of your lease and accounts for the vehicle's depreciation during the lease term. The leasing company determines this number, and you'll be able to view it before signing the lease. Typically, your lease agreement states the residual value.

  2. Look up the car's market value. The market value of your vehicle is the amount of money a dealership or buyer would pay for it. Use the Use the Kelley Blue Book car value calculator to determine your vehicle's worth based on its location, make and model, age, current condition, features, and mileage.

  3. Compare the car's residual value to its market value. Comparing your vehicle's residual value and current market value can clarify whether it makes financial sense to buy out the lease. Remember that leasing companies usually don't negotiate the residual value, which is a major part of the buyout price. So if your car is worth less than the residual value stated in your contract, buying out the lease may not make financial sense.

  4. Calculate additional taxes and fees. Depending on your location, you may have to pay local and/or state used car sales taxes as part of the buyout cost. Plan to pay extra for licensing or registration fees for registering a new vehicle under your name. Some leasing companies charge a purchase option fee, and the buyout price can also include remaining lease payments, especially for an early buyout. Double-check your lease agreement so you're prepared for additional costs.

How to Pay for a Car Lease Buyout

If the lease buyout option is available in your contract, you can tell the leasing company of your purchase intentions at the appropriate time. You could seek a lease buyout loan from a financial institution to finance the purchase.

A lease buyout loan is similar to an auto loan in which you have set monthly payments, an annual interest rate, and a set loan term or specified loan length. Of course, if you have funds set aside to purchase a vehicle, you can opt to take care of the buyout fee in cash.

Factors to Consider before Buying Out Your Lease

Are you prepared to purchase your leased vehicle? If so, we suggest conducting some independent research to help determine if a lease buyout is right for you. If you still have questions, consider the following factors:

Consider the Timing

It's important to consider the timing of your car lease buyout. Let's say you want to buy your leased car a year before your lease ends. In this case, you should check your lease contract to see if you'd be subject to any additional fees associated with ending your car lease early. If you are, it might be best to wait until the lease ends before buying out your lease.

Determine the Car's Current Value

Determining your car's current value can help you decide if it's worth purchasing. Look up the retail price of your car, which is what you would pay a car dealership to buy it. Next, find out the wholesale value or the price a dealer might pay to buy the car at an auction.

Compare these amounts with the vehicle's residual value. Buying the car might be a good idea if the market value is higher than the residual value. If the opposite is true, the car is likely not worth purchasing.

Shop Around for Financing

It's normal to require financing for your car lease buyout. Your current leasing company might offer financing options, though you aren't obligated to stick with it. Contact other finance companies, such as banks or credit unions, to check what kind of loans they offer. Some service providers offer competitive rates, but you won't know until you shop around.

Having good credit can also improve your chances of getting a better deal. Keep in mind that the higher your credit score, the more likely a lender is to offer you a lower interest rate on your lease buyout loan.

Try to Negotiate the Buyout Price

Many leasing companies have a non-negotiation clause in their lease agreement, meaning you can't negotiate the buyout price. Regardless, it doesn't hurt to ask the question. Some lessors are willing to negotiate and might offer financing discounts or purchase incentives. You could also get the potential purchase option fee waived if you try to negotiate.

Let the Leasing Company Make the First Move

It's customary for your leasing company to contact you within 90 days before your lease expires. Try to wait for it to make the first move and contact you about the lease ending. Doing so gives you the upper hand when expressing your desire to purchase the leased vehicle. It could also make the lessor more open to negotiations versus letting it know your intentions early.

Is a Car Lease Buyout Worth It?

Buying out a car lease isn't for everyone, especially if it doesn't make financial sense. What if the car's buyout price is higher than its market value? For example, if a car's buyout price is $10,000, but it's only worth $7,500, it might be better to trade the vehicle for a new lease, as purchasing it wouldn't make financial sense.

In contrast, a car lease buyout may be worthwhile if the vehicle's market value exceeds the buyout price. You should ensure that a lease buyout makes sense for you financially. However, if you feel strongly about purchasing your car because you've grown attached to it, you might consider buying it even if the buyout cost exceeds the market value.

Read your lease terms to understand your lease buyout eligibility and the potential fees involved. Remember to consider the timing and financing factors versus the value and condition of your leased car. You can proceed with buying out the lease if it's worth it.

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