Car Lease Buyout: How Does It Work?

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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.

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.

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:

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.

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.

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 times to consider a car lease buyout

If you love the car

It’s not uncommon for people to become emotionally attached to their vehicles. After all, you may depend on it to get to work every day, visit family or take a vacation. A lot of memories can be tied to a car — not to mention every time you go down the road at 80 miles an hour, your life depends on it being safe. If you ended up falling in love with your leased car, you may want to buy it.

If it’s affordable

Buying the car you leased may or may not be affordable to you. There may have been a big life change in the years you were leasing and the higher payment that comes with buying the car may not fit your budget. You can use this auto loan calculator to get an idea of what your payments will be like and you can view lease buyout offers here.

If you treated it well

When your lease is up, you’re probably in the market for a vehicle. And if you’re looking for a used vehicle, what car is better than the one you’ve had? If you took good care of it, you know it will probably last a long time, whereas buying someone else’s used car may be a riskier notion.

If you would be charged high fees for turning it in

If you drastically exceeded your mileage limit, you may find out how quickly a few cents a mile adds up. Different companies charge different amounts for each mile you go over your allotted amount. The same can be said of wear-and-tear charges. Rips and tears from the time your dog took a ride in the backseat and dings from traveling down unpaved roads (or that loose shopping cart) may add up to hefty fees. If the bill is high, it may be cheaper to buy the car instead.

If it still matches your lifestyle

Sometimes we need different cars at different points in our lives. For example, if your kids are off to college, why stay in a minivan? But if your leased car still fits your lifestyle, why change? Your minivan still works and now you can haul your spouse, your dogs and your camping gear for weekend trips without a problem.

If it’s worth more than what your contract says

When you sign an auto lease contract, you and the seller agree on the price of the car at the time of signing, and what it will be worth when your lease is up. The latter is a prediction; it may not be correct. Your leased car could turn out to be worth more or less than what was agreed. If it is worth more, the car is underpriced and it’d be a good deal.

When to avoid buying your leased vehicle

If the car doesn’t match your needs

Maybe you moved north and need a car that can better handle the snow. Or, you just had a kid and putting a child safety seat in a coupe isn’t easy. The great part about a lease is that you’re not tied to the vehicle after the lease ends. You don’t have it buy it; you can get something that better matches what’s going on in your life now.

If it isn’t affordable

It may not be affordable for you to buy your leased car. Maybe something happened and your credit score went down, which could make the APR on your “new-ish” car pretty high. You may be better off turning in the car and buying an older used car.

If it was damaged

If the car was damaged in an accident or a storm, it will be considered worth less than an undamaged one, even if it was repaired. In a lease, you don’t own the car, so the negative impact to its value would only affect you if you bought it. Ergo, don’t buy it.

If it’s worth less than what your contract says

Because you signed the lease contract, the car’s buyout value is set, meaning that even though the car is worth less than what was predicted, you still have to pay the agreed upon price. You would pay more than what the car is worth, which isn’t a good deal.

Higher APR

The APR you got for your lease was partially based on the fact the car was new. When you buy your leased car, the car is now used. This usually means a higher APR as lenders consider a used car to be a riskier investment. If the APR is too high because of the car, apply to see if you could get a lower APR on another car.

How the lease buyout process works

Towards the end of your lease, this is the typical timeline of events you can expect. It includes when the lease company will contact you and when you should apply for loans.

Two to three months prior to your lease ending

The lender should contact you. If they don’t contact you to go over your lease end options, you should contact them. The three options you have at the end of a lease are to buy the car, return the car or return it and immediately lease or buy a new one. At this point, you should decide which option you want and confirm the process for ending your lease.

One month before your lease ends

Assuming you do want to buy it and that you need a loan, you should get loan offers before the lease officially ends. But be careful with timing — don’t apply more than a month ahead of time, because most loan offers are only good for a month. After the loan offers expire, you’ll have to apply all over again. But, also, don’t apply for loans too late — if you keep the car for a few days after lease-end without buying it, you may receive penalties.

Tell the lender you want to do a lease buyout. They may ask if you’d like to apply for a loan with them for the remaining value of the car. And if you’re satisfied with your experience with them as your lease financing company, why not apply with them to buy the car? But don’t apply to just one place — you won’t hurt your credit by applying to multiple places within a two-week period. Apply to several lenders, see what they offer and take the loan that best suits you.

The day your lease ends

You may have to go to the DMV or your lender to sign paperwork to finalize everything and officially claim the car as yours.

Paying for the car with a lease buyout loan

If the lender that’s financing your lease buyout is the same one that leased the car to you, then you shouldn’t have much to do. If it’s not the same, the new lender will either send a check to the old leasing company, or send the check to you to give to them.

When looking for a new lender, don’t forget to shop around to compare auto loans so you can choose the one with the least amount of interest or the one with the lowest payment, whichever fits you best.

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