Car Lease Buyout - Smart Option or Not ?

Most auto leases provide the leasing customer with the option to buy their car at the end of the lease, or prior to the end of the lease. This is called a "lease buyout" or "lease payoff."

To buy out your lease simply means you purchase your vehicle from the lease company – either with cash or a loan – and pay off the lease-end residual.

Most lease contracts allow a buyout, but some don't. Some restrict the time period during the lease in which you may exercise your purchase option. For example, buyouts may be prohibited in the first few months and/or the last few months. You should read your lease contract to determine if you have any such restrictions.

You might consider a buyout if you wanted to continue driving your car after your lease ends. Since you know the car's history and know its condition, it makes a great used car purchase without the uncertainties of buying a car from a dealer or stranger. You know the car, how it's been treated, and its condition.

If you've exceeded your mileage limits, or have excessive wear or damages, and want to try to avoid associated penalties, you may want to consider an early buyout or early termination.

There are two kinds of car lease buyouts:

1. Normal buyout (at normal end of lease)
2. Early buyout (before lease ends)

Normal Buyout
Buying your vehicle at the end of your lease is sometimes a good option, and sometimes not, depending on the details of your particular situation. This option should always be considered and compared to your other lease-end options to determine if it's your best move.

The end-of-lease purchase price is typically the residual value stated in your lease contract, although this price is sometimes negotiable.

Much more detail on how to handle lease buyouts can be found in a special section our Lease Kit, the Lease-End Advisor, which contains a complete discussion of all lease-end options, including a buyout, and how to determine which is the best option for your particular situation.

Financing a leased-car purchase is the same as financing any used car purchase. You arrange for a used-car loan, get a check written to the lease company for the amount of the purchase, possibly pay sales tax, and you're done. The loan company usually holds the title until you've paid off your loan.

Early Buyout
If you decide that you want to purchase your vehicle before lease-end, this is considered an early buyout. It's more complicated than a lease-end buyout because of the way that the price of the vehicle is determined. The price is a combination of the lease-end residual value, as stated in your lease contract, added to the amount you still owe on your lease.

The amount you still owe on your lease may be considerably higher than you might think. It's because your low monthly lease payments have not kept up with the rapid depreciation in your vehicle's value. It's also because your lease company recalculates your lease balance in a different way than it was originally calculated, resulting in crediting most of your payments to finance charges rather than paying down the lease.

Understand that an early buyout is different than an early termination in which you want to return your vehicle to the lease company and end your lease early. The Early Termination Guide in our Lease Kit explains the details and how to handle an early lease termination..

For more, see LeaseGuide.com