Should you buy out your lease?

When a lease ends you have a choice. The CFPB puts it simply: "At the end of your lease term, you can either turn the vehicle in and pay any end-of-lease fees or purchase the vehicle if your lease includes a purchase option." Which is better comes down to two comparisons: what the car is worth against what it costs to buy, and what handing it back would cost you.

The price is already set

The buyout price is not negotiated at the end; it was written into the lease at the start. Federal rules require the lease to say whether you can buy the car and, "If at the end of the lease term, the purchase price". That price is usually the residual value, the estimate of the car's end-of-lease value used to set your payment. The CFPB describes the residual as what "you will pay for the car if a purchase option is included."

The residual was a forecast made years ago. The car's actual value today may be higher or lower, and that gap is the whole question.

Residual against market value: your equity

Add up what buying actually costs: the purchase price, any purchase option fee, sales tax on the price where your state charges it, and title and registration. Subtract that from what the car would sell for today. The result is your equity.

Take a $20,000 buyout price, a $300 option fee, 6% sales tax ($1,200) and $150 of title: $21,650 all in.

• Worth $24,000: $2,350 of equity. Hand the car back and the lessor keeps it. Buying out and keeping the car, or selling it, captures that value.
• Worth $19,000: $2,650 under water. Hand it back and the lessor takes the loss; buying it means paying more than the car is worth.

To estimate the value, get written offers from a few dealers or buyers and compare listings for the same model, year, trim and mileage. An offer to buy is better evidence than an asking price.

The charges you avoid

Handing the car back has its own costs, which buying it out avoids. "Most leases restrict your mileage to 10,000-15,000 miles per year, and they may also include fees for excessive mileage and for wear and tear at the end of the agreement." The lease has to warn you, in words like these: "Excessive Wear and Use. You may be charged for excessive wear based on our standards for normal use." It must also "specify the amount or method for determining any charge for excess mileage." Some leases also charge a disposition fee at turn-in.

These charges can tip the answer. Value the same car at $21,000: it is $650 under water, and with only a $400 disposition fee, returning it is $250 better. Now add 6,000 miles over the allowance at 25 cents a mile: $1,500 of mileage charges. Buying out avoids $1,900 in total and comes out $1,250 ahead, even though the car is worth less than the buyout.

The lease buyout calculator puts these numbers together and shows which ones drive the result.

Against buying another car

If you would replace the car anyway, the fairer comparison is with a similar used car. Returning means paying the turn-in charges and then the replacement's price, tax and title. Buying out means paying the buyout total for a car you already know: how it was driven, how it was maintained, and whether it has been in an accident. That knowledge is worth something a listing cannot show. Check how much of the manufacturer's warranty remains; the lease lists "all express warranties and guarantees from the manufacturer or lessor with respect to the leased property that apply".

Financing a buyout

If you do not have the cash, a buyout can be financed like any used-car purchase. Compare offers from your bank or credit union as well as the lessor's, since the rate affects the true cost: on $21,650 over 36 months, each percentage point adds roughly $350 of interest. Ask the lessor, too, whether a dealer or another buyer may purchase the car for you, and what fees apply; those policies are set by each lessor.

When returning makes more sense

• The car is worth less than the buyout, by more than the charges you would avoid. The lessor bears that loss if you hand it back.
• You are within your miles and the car is clean, so the turn-in costs are small.
• You want a different car, or this one is near the end of its warranty with expensive repairs ahead.
• The financing would be costly, turning a fair buyout into an expensive loan.

As the CFPB notes, "You should question how accurate the residual value estimate is because that value is used to determine the monthly payment and also the amount you pay if you decide to purchase the vehicle at the end of the lease." At the end of the lease, that estimate is either a bargain or a premium, and you can check which. For how the residual set your payment in the first place, see how a lease payment is calculated and the lease payment calculator; to compare leasing with buying from the start, see whether leasing or buying is cheaper.

Sources: CFPB, What should I know about leasing versus buying a car? (last reviewed 12 September 2023). 12 CFR 1013.4 (Regulation M, content of lease disclosures: purchase option, wear and use, excess mileage and warranties). Buyout figures computed with this site's own code.