If you enjoy your leased car and cancel the thought of returning it to the dealer, a lease purchase option may be a good option to consider.
What is a Lease Buyout? A purchase option sometimes called a lease buy-out option, allows you to buy the car at the end of the lease instead of returning it to the dealer if your lease allows it.
Car leases typically allow lessees to return the car, change it in for another car, or buy it at the end of the lease period. Buying a leased vehicle may be the right decision for some people, but it’s not always the best option.
Read the complete article to know each detail about car lease buyout, then decide does buying out a leased car good for you or not.
What is a Lease Buyout?
A car lease buyout option, also called a lease purchase option, is a clause included in the lease agreement that allows you to buy the vehicle at the end of the lease period. Simply put, a lease purchase option allows you to own the vehicle at the end of the lease period.
The purchase amount is based on the vehicle’s residual value (the expected value of the vehicle at the end of the lease after taking into account wear and tear, depreciation, and mileage).
How Does a Lease Buyout Work?
When you cancel your lease, you buy the car at the end of the lease by paying the dealer the remaining value.
Not all leases allow buyouts, but it’s fairly common. Some contracts even allow you to buy the car before the lease ends. Most leasing companies have their own unique process for buying out car leases. Here are the basic steps:
Talk to your leasing institution. Check with your leasing institution when you’re nearing the end of your lease. This gives you the opportunity to ask questions about your options at the end of the lease and any potential fees associated with the purchase.
If you’re going to finance the purchase, apply for pre-approval. If you don’t pay the full amount at the time of purchase, consider a loan for the purchase of the leased vehicle instead. You can apply for pre-approval from the comfort of your home to get the process started.
Negotiate and finalize the purchase. You have the option to accept the original purchase price or try to negotiate with the leasing company a lower figure. Once you’ve decided on a price, simply fill out the paperwork and finalize the purchase.
How Can You Buying Out a Leased Car?
Many finance companies offer drivers lease purchase options that they can exercise after the lease agreement ends, sometimes before.
The car lease agreement should detail your lease purchase options and the price, or method of determining the price, that would have to be paid to exercise the lease purchase.
Your car rental company can tell you about your lease termination options toward the end of the lease. Before you decide to terminate the lease, you may want to look into other car purchase options. While it may be convenient to buy a car you’re already used to, you may be able to save money on the same make and model at a different dealership.
How much does it cost to buy a lease?
It depends on a few factors, like the value of your car. Check your lease to find the residual value, which refers to the expected value of the car at the end of the lease. This is the base amount you’ll pay the dealer to take possession of the car.
Next, determine how many payments are left on your lease. If you’re halfway through your lease, you’ll pay those payments in addition to the residual value amount. For example, a car with a residual value of $16,500 with $2,100 in payments remaining would cost $18,600.
Important Things to Consider While Buying Out a Leased Car
If you’re wondering whether you should buy your leased car, think about the following:
Mileage
A rental agreement clearly states the number of miles you can drive during the rental period. If you exceed the mileage limits, you’ll probably have to pay a fine when you return the car.
Condition
Dealers typically expect some wear and tear at the end of a lease, but if you’ve accumulated damage, it may be smart to buy the car yourself. Dents, blemishes, broken mirrors, and peeling paint can all reduce the car’s actual value.
But, like mileage, you’ll likely have to pay high fees to pay for repairs. It may 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
A growing family may need a roomy SUV with a suite of safety features. Research other cars to see if there’s a model that might be better for you.
Price
This might also be a good time to think about other options at the end of the lease, such as trading in your car, returning it and buying a new model, or buying a used car from a dealer or independent seller.
It’s important that you can afford the option you’re committing to, but it’s also important that you feel like you’re making a worthwhile investment.
If you’re on a tight budget, you might want to consider renewing your lease. Before you do, you can learn the pros and cons of renewing a car lease.
Timing
Even if you’re sure you want to get out of your lease, buying at the right time can save you money. There are two types of buyouts: a lease-end buyout and an early lease buyout.
Review your contract and talk to your leasing company to find out which option is best for you.
Should You Buy Your Leased Car?
Generally speaking, there are four considerations to keep in mind when purchasing a vehicle on lease:
Exceeding mileage limits – If you have exceeded the mileage limits set out in your lease agreement, you may have to pay additional fees for each mile driven. It may be more convenient to buy the vehicle outright rather than pay high fees.
Future maintenance costs – Certain makes and models of vehicles have very low maintenance fees, which means you can save more in the long run. Instead of paying for vehicle maintenance on lease, buy the vehicle and enjoy the savings.
Vehicle condition – All vehicles depreciate over time due to wear and tear over their lifespan. However, you will find that dealers charge high fees for more than normal wear and tear – sometimes thousands of dollars. Buy the lease if you don’t think the fees are worth it!
Ability to finance the purchase – Do you have enough cash to pay for the lease up front? Or do you plan to finance it through other means, such as refinancing? Choose a lease purchase only if you are clear about these options.
When Not to Buy a Leased Car
You love your car, but sometimes it just isn’t worth the effort to lease it. Purchasing a vehicle on lease is a big decision, so it’s important to choose wisely. Here are some circumstances when it might be best to return the car to the dealer:
When the car is in bad condition.
When you can replace it at a better price.
When the car has high mileage.
When you are not happy with the car
How is a lease buyout calculated?
If you’re doing a lease buyout at the end of the lease, you’ll need to pay the residual value plus taxes and fees or finance the purchase with a loan.
Start by checking your lease to make sure it allows for a purchase option at the end of the lease. Here’s a guide you can use to figure out how much a lease buyout might cost:
Residual value: You can find this number on your lease, and it represents the value of the car at the end of the lease.
Purchase option fee: Some leases include a purchase option fee if you decide to buy the car when the lease ends, and it will be included in your contract.
Current value of the car: Find an estimate of the current market value of the vehicle using the tools mentioned above.
Estimate taxes and fees: You’ll pay registration, license, and any other fees and sales taxes. You can check with your state’s motor vehicle department for more details.
To calculate the buyout amount, add the residual value to any remaining fees, taxes and outstanding charges and the purchase option fee. Use these Lease Buyout Calculator to to take right decision.
FAQs
Do I have to go to the dealer to buyout my lease?
No, you do not have to go to the dealer to break the lease. The leasing company is the entity that holds the lease, not the dealer. They can provide you with the breakup amount and other details.
How can I avoid lease buyout fees?
In addition to negotiating dealer fees, you can also ask the dealer for purchase incentives or financing discounts. You can negotiate with the leasing company to waive fees or ask for a more flexible term. Be firm but respectful. If your lease agreement includes a purchase option, you can buy the vehicle to avoid the disposition fee.
How to buy your leased car early?
Another option is early lease buyout. It’s not available in all cases, so it’s best to review the contract or consult our financial experts if you have any questions. The most common reason drivers choose early lease termination is to avoid penalties. For example, if you’re about to exceed your mileage or your car has damage, early lease termination may be a worthwhile option. But keep in mind that the price will be determined based on:
- The residual value at the end of the lease stated in the original contract.
- The amount you still owe on the lease.
- The amount of depreciation that has occurred. If your car has depreciated to the point that it’s below market value, you’ll likely have to pay the difference.
Should I buy my leased car with low mileage?
Purchasing a vehicle on a leasing basis is a good idea if you are willing to drive a vehicle long-term rather than opting for a new lease. If the vehicle you have leased has low mileage, is in excellent condition, and the residual value is competitive, purchasing it can be a smart financial decision. However, carefully consider your needs, future vehicle costs, and the current market to ensure it is the best decision for you.
