A how to guide to buying out a car lease

May 26, 2022

By Lois Sullivan

A how to guide to buying out a car lease

A family enjoys their car after they buy out a car lease.

A lease is a popular financing option for a vehicle. Dealerships allow lessees to drive new vehicles in exchange for monthly payments. When the lease term ends, the lessee can decide whether to return the vehicle or buy out the lease and keep the vehicle. If you're in a lease agreement and are considering buying out your car lease, this guide will tell you how to do it and what to expect.

Understanding a lease buyout

When you lease a vehicle, you sign an agreement with the dealership that outlines the terms of the deal. This agreement includes:

  • How many miles you can drive the car each year (and what penalties may apply if you exceed the annual limit).
  • Your options at the end of the lease.
  • A definition of the vehicle's residual value (also known as the buyout amount or purchase option price).

A lease buyout occurs when the lessee chooses to pay the residual value and keep the vehicle. Not all lease agreements allow for a buyout, so it's important to review your agreement before you decide what to do at the end of the term. If your agreement doesn't allow for a buyout, you can choose a different vehicle to purchase.

Paying for a lease buyout

If your agreement does allow you to buy out the lease, you don't have to pay the full residual value in cash. This is certainly an option if you have enough saved to pay for it outright, but most lessees finance the buyout amount. Since a vehicle nearing the end of its lease agreement is only a few years old, the residual value may still be quite high.

If you choose to finance the cost of the vehicle, you can work with a lender of your choosing. The interest rate you qualify for will depend on your credit history and current market rates at the time of your application. Alliant works with a trusted financial partner, Lease Maturity, to handle car lease buyouts. Working with a lender that specializes in lease buyouts can help the process go more smoothly because they may have a better understanding of the buyout process.

What to consider when buying out a lease

Before you decide whether to buy out your lease or return the car to the dealership, it's helpful to consider these key factors:

Condition of the car

The condition of the vehicle is a major factor when determining whether to buy it out or return it. The lease agreement typically specifies the expected condition for a lease return, and if your car doesn't meet the agreed-upon terms, you may be subject to significant fees. In some cases, the fees can be hundreds or even thousands of dollars.

Most dealerships allow for the wear and tear incurred in normal driving conditions, but anything beyond their definition of standard wear and tear may cost you a lot if you decide to return it. Keeping the car might save you money, especially if the condition is acceptable to you.

Ongoing maintenance costs

Something else to think about when deciding whether to buy out your lease is how much the vehicle might cost to maintain. Do your own research and look at data from independent automotive review sites to figure out whether you want to take on the vehicle's future service needs. The estimated maintenance costs should factor into your budget along with the buyout amount.

Current mileage

As mentioned, lease agreements generally specify a mileage maximum that the lessee can drive the car per year. If you have exceeded this annual maximum, you may have to pay hundreds or even thousands of dollars if you decide to return it. It might make financial sense to put that money toward buying out the vehicle, rather than paying the dealership for the extra miles driven.

Car value

If your lease agreement includes the residual value or payoff amount, compare that number with the value of your vehicle on third-party sites. When you entered into the lease agreement, the factors used to calculate the residual value may not reflect the current automotive market, so the value of the vehicle may be lower or higher than the original estimated residual value. Since this number is typically nonnegotiable, it will help you decide whether it's worth it to buy out the lease or return the vehicle and get something else.

After you have taken these factors into consideration and compared costs, you can determine whether buying out the lease is the right move for you.

Steps to buying out a car lease

If you do want to buy out your lease, the first step is to review your agreement again. The contract should outline the buyout option and method that determines the residual value of the vehicle. If your lease is nearing the end of its term, you may receive communication from the financial company that holds the lease outlining your options. Contact the lessor to discuss these options and get the residual value of the car.

The next step is deciding how you want to finance the vehicle buyout (if applicable). The dealership or leasing company might try to convince you to use their financial services again, but you have more control over financing a lease buyout. You can choose a lender that provides excellent service and the support and resources you need to make an informed decision, rather than just taking what the dealership can offer.

Pros of buying out your lease

If the buyout amount in your lease agreement is lower than the current market value, it's certainly worth considering buying out the lease as you might end up paying less than you would to purchase a similar vehicle. Another advantage of buying out a car lease is that you don't have to spend any time shopping for a new vehicle. Buying a car can be a frustrating and time-consuming process, which you can avoid by keeping the car you already have.

If you're at the point of considering buying out your car's lease, you've likely been driving it for at least a few years. You probably feel comfortable behind the wheel and also know how to use the car's features. If you went over the mileage maximum and/or put excessive wear and tear on the vehicle, buying out eliminates the requirement to pay any fees associated with breaking the terms of the lease agreement.

Want to learn more about car loans? Check out these great blog articles:


Up your Financial IQ

Sign up for our monthly newsletter to help you stay at the top of your financial game.