About a quarter of new cars in the U.S. are leased (28%), but not everyone wants to give the car back when their contract is up. Have you grown too attached to your car to give it up? Read on to learn everything you need to know about buying out a lease.
We’ll walk you through how best to buy out your lease, and how to negotiate the best price from your dealer. Plus, we’ll answer some commonly asked questions about buying out a lease.
Let’s start with the basics.
Can you lease a car and then buy it?
Yes! When your lease ends, you usually have three options. Depending on your preferences, you can:
- Return the car to the leasing company.
- Extend the lease.
- Buy the car.
If you decide to buy the car, check your lease agreement to find the “residual price” — the value of the car at lease-end (as determined by the leasing company). In addition to this cost, you’ll need to pay any applicable fees and taxes.
Are there any advantages to buying out a lease?
The advantages of owning your own car are obvious: no more lease payments! But there’s also a less obvious advantage.
One of the downsides to a lease is all of the restrictions. There are limits on what you can do to the car and how much you can drive it. If you go past the limits, you’ll owe extra at the lease-end.
For example, if your lease says you can only drive 40,000 miles and you drive 45,000, you will be charged for every mile over the limit. Some rates are as high as $0.25 per mile, which would set you back you $1,250 for those extra 5000 miles.
But if you purchase the car at the end of your lease, you can usually sidestep any penalties for excess mileage or wear-and-tear. Further, the disposition fee (like a return fee) is usually waived.
Are there any disadvantages to buying out a lease?
There may be a purchase option fee of a couple hundred dollars, so look out for that.
- Yes, you can usually buy your car at the end of the lease.
- You may have to pay taxes and fees.
- Some fees will be waived (disposition, extra mileage, excess wear-and-tear).
What costs are involved in a lease-end buyout?
Kerry Moriarty, a business consultant with a background in financial services, says, “When you make the decision to lease a vehicle from the dealer, you’ll agree to the number of years in the lease and the number of annual miles you can add to the car within the lease term.”
She continues, “Most leases are a standard 12,000 or 15,000 miles per year. The dealer uses this information to determine the cost of the buyout.
So, for example, say you’re leasing a 2019 vehicle with a new value of $35,000 and a 15,000-mile 36-month lease – when you return the car at the end of your lease in 2021, it will be three years old with 45,000 miles on it.
The value of that car is, say, $20,000. So at the end of your lease, you have the option to either turn in the car and walk away or purchase the car at the buyout value of $20,000.”
Generally speaking, you’ll also owe state taxes, transfer costs, and a purchase option fee.
Rob Campbell, an analyst in retail automotive for Withum Smith & Brown, says, “It is important to remember that sales tax has not been paid on the remaining balance, only on the depreciation.
For instance, if you lease a vehicle that has an MSRP of $50,000 and a residual of $30,000 and you have paid the $20,000 through your lease payments, the remaining $30,000 balance for most jurisdictions would require sales tax to be paid.
Additionally, the plates and registration will need to be changed from the leasing company to your name.”
In summary, the costs of buying out a lease include:
- The car’s current value (accounting for depreciation).
- State taxes.
- Transfer costs.
- A purchase option fee.
- Registration and license plate costs.
Can you negotiate the price when you buy a leased car?
Yes! Generally speaking, you can negotiate the price of a car lease. Leasing companies sell their returned cars at auctions or directly to dealers, which comes with shipping expenses and auction fees.
It is often less of a hassle and less expensive for the company if you buy the car. So, they may be willing to lower the purchase price to sweeten the deal.
How to negotiate a lease-end buyout
While you can’t do much about taxes and fees, you can try to negotiate on the purchase price.
Here are three steps to help you negotiate:
1. Find out what your car is really worth
The listed buyout price for your car may be higher than the fair market value. In order to find out if you’re getting ripped off, find out what your car is really worth. Look up the trade-in value of your vehicle online, and then compare that figure to the buyout price.
If the trade-in value is greater than your buyout cost, you’re getting a good deal! You can still try to negotiate, but the company is unlikely to cooperate.
If, on the other hand, the vehicle is worth less than the buyout price, you can use that information as a bargaining chip to negotiate.
Once you know the true value of your vehicle, how should you go about negotiating?
2. Let them come to you
It’s the old game of playing hard to get. You don’t want the company to think that you’re eager to buy the car, as they will be less likely to lower the price.
Typically, when a lease is coming to an end, the company will contact you to review your lease-end options. When they do, tell them that you are planning to return the car because the residual price is too high. (If you wait a week and still don’t hear from them, you may need to make the first move).
Make sure you’ve done your research by the time you begin negotiations. If your car is worth more than the buyout price, use that as leverage. Feel it out to see if they seem willing to compromise. If they won’t, end the conversation. You can call back later to make your final decision.
Keep in mind that not every leasing company will negotiate. You have better odds with small local companies. In most cases, captive leasing companies — those operated by the vehicle manufacturer — won’t negotiate.
3. Shop around for financing
If you are going to finance your vehicle purchase, it’s a good idea to shop around for loans while you’re waiting to negotiate. You may receive a financing offer from the dealer, but it’s never good to take the only offer you get. Plus, dealers can be sneaky. Many add in hidden fees. And a dealer’s documentation fee can cost you around $200 extra!
Make sure to get quotes from at least three lenders before committing to a loan. If you intend to use dealer financing, you can use these quotes as leverage when negotiating rates.
By following these steps, you can potentially negotiate your way to a better deal on your lease-end buyout.
Frequently asked questions about buying out a lease
Can you buy out of a lease early?
Yes, you can buy out of a lease at any time during the contract. However, you’ll have to pay an early termination fee. The cost of the fee varies depending on your contract and how much time is left on it.
Fees typically range from $200 to $500. Additionally, you may be on the hook for your remaining payments.
How can you break your lease without penalty?
Can you get out of a car lease early without paying an arm and a leg? There are a few ways.
You can buy the car and keep it, or sell it to a dealer or private party. However, you’ll likely have to pay $200 to $500 in buyout fees.
You can also trade it in, or transfer the lease to someone else. But with this option, you’ll owe $50 to $500 in transfer fees.
Admittedly, each of these options comes with a fee. But these fees will probably cost you less than breaking the lease and still owing your remaining payments.
Read the details of your lease and figure out the cost of the other options to find the best solution.
Are leases a good deal?
In the long term, leases aren’t the best deal, because they don’t accrue any equity. It’s the equivalent of renting a home instead of buying one.
But for that reason, in the short term, leases are a lower-cost way to get your hands on a car. Many people lease to secure a lower down payment and lower monthly payments than you’d get if you were paying off a purchase. Plus, getting a different car every few years lets you sidestep the cost of maintaining an older vehicle.
How can you finance your lease buyout?
Do you want to buy the car you’re leasing, but you don’t have the cash on hand? Then you’ll need to finance the purchase.
Some auto loan lenders, like Wells Fargo and Bank of America, offer financing for lease buyouts. Others, like Capital One, do not. Looking for more options? The lenders listed below all offer lease purchase financing.
If you have good credit, you can also consider a personal loan.
If you need an auto loan to finance your purchase, click here to get personalized auto loan rates from dozens of top lenders. It’s quick and easy, and it won’t hurt your credit score.
Or if you’re looking to shop around, click here to compare top-rated lenders side-by-side, complete with unbiased reviews from past borrowers.
It doesn’t hurt to see what you qualify for! The more you know, the easier it will be to get a great deal.
Jessica Walrack is a personal finance writer at SuperMoney, The Simple Dollar, Interest.com, Commonbond, Bankrate, NextAdvisor, Guardian, Personalloans.org and many others. She specializes in taking personal finance topics like loans, credit cards, and budgeting, and making them accessible and fun.