The Lease Buyout Question Everyone Asks
Your lease is ending, and now the leasing company is asking: do you want to buy it? It sounds simple, but this decision involves more math than most people realize. Buy the wrong car at the wrong price, and you overpay for a used vehicle. Buy the right car at the right price, and you lock in a deal that is hard to beat on the open market.
The key is knowing when a lease buyout makes sense and when you should walk away. Let's break it down.
How a Lease Buyout Works
When you signed your lease, the contract included a residual value. That is the predicted value of the car at the end of the lease term. At lease end, you have the option to purchase the vehicle for that residual value, plus a purchase option fee (usually $300 to $500) and applicable taxes.
This price is locked in from day one. It does not change based on what happens in the used car market, how many miles you drove, or what condition the car is in. That fixed price is what makes buyouts potentially valuable, because the market may have moved significantly since you signed.
Think of it this way: if the residual was set at $22,000 but your car is now worth $27,000 on the open market, you are buying a $27,000 car for $22,000. That is $5,000 in instant equity.
When a Lease Buyout Makes Financial Sense
A buyout is a good move when the numbers work in your favor. Specifically:
The Buyout Price Is Below Market Value
This is the biggest indicator. If your residual value (plus fees and taxes) is less than what the car sells for on the open market, you are getting a deal. Use tools like Kelley Blue Book, Edmunds, and real offers from CarMax to check if your lease has equity.
You Know the Car's Full History
When you buy a used car from a dealer or private party, you are taking someone else's word on maintenance, accidents, and condition. With your leased car, you know everything. You know how it was maintained, whether it was in any incidents, and exactly how it drives. That certainty has real value.
You Want to Avoid the New Car Market
If new car prices are high, inventory is tight, or you simply do not want to start a new lease or loan, buying out your current lease keeps you in a car you already know and like. No shopping, no negotiating, no dealer visits.
You Are Under Mileage
If you drove significantly fewer miles than your lease allowed, your car is likely in better condition and worth more than the residual predicted. Low-mileage lease returns are some of the best buyout candidates because the residual was set assuming you would use all your allotted miles.
When a Lease Buyout Does Not Make Sense
Not every buyout is a winner. Here is when you should consider returning the car instead:
The Buyout Price Is Above Market Value
If your residual is $25,000 but the car is only worth $21,000 on the open market, you would be overpaying by $4,000. In this case, return the car and use that money toward something else. There is no rule that says you have to buy your leased car.
The Car Needs Expensive Repairs
If major maintenance is coming up (new tires, brake job, transmission service), factor those costs into your decision. A car that seems like a good deal at $22,000 looks less appealing if it needs $3,000 in work within the next six months.
You Want Something Different
Sometimes the simplest reason is the best one. If you are tired of the car, your needs have changed, or you want to switch to an EV or a different size vehicle, the buyout math is irrelevant. Return it and move on.
Your Interest Rate Would Be Too High
If you need to finance the buyout and the best rate you can get is 8% or higher, the total cost of ownership over the loan term may eliminate any equity advantage. Calculate the total amount you will pay over the life of the loan, not just the monthly payment.
The Full Cost of a Lease Buyout
Your residual value is just one piece. Here is everything that factors into your total buyout cost:
- Residual value (from your lease contract)
- Purchase option fee ($300 to $500, varies by brand)
- Sales tax (in NJ, this is 6.625% on the purchase price)
- Title and registration fees
- Any remaining payments if buying out early
- Inspection fees (some states require them for title transfer)
Add all of these up before comparing to market value. A $22,000 residual becomes roughly $24,000 to $24,500 after fees and taxes in New Jersey.
How to Finance a Lease Buyout
You do not need to pay cash. Most people finance their lease buyouts, and you have several options:
- Your leasing company: They will often offer financing, but the rate may not be the best available.
- Banks: Traditional banks offer auto loans for lease buyouts. Get pre-approved before committing.
- Credit unions: Often have the best rates on used car loans. A lease buyout is treated as a used car purchase for financing purposes.
- Online lenders: Companies like Capital One Auto, LightStream, and others offer competitive rates.
Shop at least two or three lenders before accepting any offer. Even a 0.5% difference in interest rate saves you hundreds over the life of the loan.
Third-Party Buyout Restrictions
If you decide not to buy the car yourself but want to sell it to capture equity, be aware that some leasing companies restrict third-party buyouts. This means you cannot sell your leased car directly to a dealer, CarMax, or another buyer without buying it yourself first.
Brands that have restricted third-party buyouts at various times include Honda, Acura, Toyota, Lexus, and BMW. Policies change, so always call your leasing company to verify the current rules.
If third-party buyouts are restricted, you may need to buy the car first (paying sales tax), then resell it. This adds cost and complexity, so factor that into your equity calculation.
The Broker Advantage
A car broker can help you evaluate whether a buyout makes sense by comparing your buyout cost to real market data. If the buyout is a good deal, great. If it is not, a broker can help you find your next vehicle at dealer cost, potentially saving you more than the equity you would have captured.
Full Disclosure
Vantage helps clients evaluate lease buyouts regularly. We will tell you honestly whether buying out your lease is the right move or whether you are better off returning it and starting fresh. We charge a transparent broker fee for sourcing your next vehicle, and we never pressure anyone into a buyout just to make a sale. Our goal is to make sure you get the best deal, whether that means keeping your current car or moving to something new.
Making Your Decision
The lease buyout decision comes down to three questions: Is the buyout price below market value? Do you still want this car? Can you get favorable financing? If the answer to all three is yes, buying out your lease is one of the smartest car moves you can make.
If any of those answers is no, returning the car is perfectly fine. You are not losing anything by walking away from a buyout that does not make financial sense.
Need help running the numbers on your lease buyout? Get a free quote from Vantage in about 5 minutes and we will give you an honest assessment of whether your buyout is worth it. No spam. No pressure. Unsubscribe anytime.
