What Is a Lease Buyout? What You Need to Know

What Is a Lease Buyout?

What Is Residual Value?

Things to Consider Before Buying Out a Car Lease

• Residual value vs. market value: The residual value is the price you’re required to pay in order to purchase the car after the lease agreement is over. So it’s crucial to compare that amount to the current market value of the car. If the residual value is significantly more expensive, then buying out the lease may not make sense. You could return the leased car and go purchase another car of the same year, make, and model for a lower price.  Research the market value price for similar cars in the same condition and with the same amount of mileage as yours to determine how the residual value you’d have to pay stacks up to the car’s current value. 

• Excess mileage and wear-and-tear-fees: In addition to the car’s residual value, you also need to consider how you’ve treated the car over the last couple of years. Leasing companies can hit you with high fees in two areas: excess mileage, and wear-and-tear. Check your lease agreement to see the mileage limit. Typically, leases only allow for between 10,000 and 15,000 miles each year of the lease. Depending on the model, you may have to pay anywhere between 15 cents and 25 cents for each mile over the limit. If you drove an additional 5,000 miles for instance, that could cost up to $1,250 at the end of your lease. You may also be charged for excessive wear-and-tear, like cracked glass, dents, and scratches. All of these extra fees could tip the balance towards a lease buyout, because you don’t have to pay them if you keep the car. And even if your residual value is slightly higher than the market value, high fees could make buying out the lease a better deal.

• Lease-end vs. early lease buyouts: You may be able to negotiate a better price on your car lease buyout by waiting until the end of the agreement rather than trying to do it during the lease period. Selling the car to you then could save the dealer time and money compared to auctioning off the vehicle.
• Other driving options: Think about what type of car financing you’d use instead of a buyout lease. You could start a new lease with another vehicle, complete with a new extended car warranty. Or you could purchase a car outright, whether with cash or an auto loan.

Pros and Cons of Car Lease Buyouts

Pros:

• You can avoid potential excess mileage fees and wear and tear fees.
• You’ll own the car as an asset instead of perpetually leasing with no equity.
• You get to keep a car that you’re familiar with.

Cons:

• The residual value may be higher than the market value of the vehicle.
• You may need to secure financing in order to pay the residual value.
• You become responsible for maintenance and upkeep. 

Paying for a Lease Buyout

The Takeaway