Should You Buy Your Leased Car?
One of the most common questions at the end of a car lease is: "Should I buy it or return it?"With used car prices fluctuating and inventory shortages becoming common, buying out your lease can sometimes be a financial home run. Other times, it's better to walk away.
Our Lease Buyout Calculator helps you make this decision by comparing the total cost of buying the car (including taxes and fees) against its current market value. It also factors in the penalties you'd pay if you returned it, such as mileage overages and wear-and-tear fees.
The 3 Numbers That Matter
To make a smart decision about your lease buyout, you can't just guess. You need to understand three specific financial figures that determine whether buying the car is a good deal or a bad one. These are the critical inputs that drive our calculator's recommendation and will help you see the full financial picture.
1. Residual Value (The Buyout Price)
This is the price at which you can buy the car at the end of the lease. It was determined when you signed your lease contract years ago. Because it was set in the past, it might be significantly lower than what the car is actually worth today. If your residual value is $20,000 but the car is selling for $28,000, you have positive equity.
2. Current Market Value
This is what your car would sell for in the open market today. You can find this number by checking guides like Kelley Blue Book or Edmunds. Be sure to look at the "Private Party" or "Trade-In" value, not the "Retail" value, to be realistic.
3. The "Walk-Away" Cost
Returning a lease isn't always free. If you've exceeded your mileage limit or have damage beyond normal wear and tear, you could be facing a bill for thousands of dollars.
- Disposition Fee: A standard fee (usually $300-$500) charged by the leasing company to process the return. You often avoid this if you buy the car.
- Mileage Penalty: Usually $0.15 to $0.25 per mile over your limit. If you're 10,000 miles over, that's a $2,000+ bill.
- Wear & Tear: Scratches, dents, or bald tires can lead to hefty charges.
The "Equity Check": How to Decide
The decision usually comes down to simple math. You are comparing two scenarios:
Scenario A: You Buy the Car
You pay the Residual Value + Taxes + Fees. You now own an asset worth the Market Value.
Net Position = Market Value - Total Cost to Buy
Scenario B: You Return the Car
You pay the Disposition Fee + Mileage Penalties + Wear & Tear. You own nothing.
Net Position = -(Total Cost to Return)
If Scenario A puts you in a better financial position than Scenario B, you should buy the car. Even if you don't want to keep it, you could buy it and immediately sell it to pocket the equity.
Financing a Lease Buyout
Unless you have the cash on hand, you'll likely need a lease buyout loan. These are essentially used car loans. Because you are buying a used car (even though you've been driving it), the interest rates will be slightly higher than new car rates.
Use our Auto Loan Calculator to explore different loan terms and see how they affect your monthly payment. Keep in mind that extending the loan term too long (e.g., 72 months) on an already 3-year-old car can put you "underwater" quickly.
Step-by-Step Guide to Buying Out Your Lease
- Call Your Leasing Company: Confirm the exact payoff amount. It might be slightly different from the residual value in your contract due to taxes or remaining payments.
- Shop for Financing: Don't just accept the dealership's financing offer. Check with credit unions or online lenders for better rates.
- Do the Math: Use this calculator to ensure the numbers make sense.
- Inspect the Car: Even though you've been driving it, it's worth considering if any major maintenance is coming up (tires, brakes, timing belt).
- Close the Deal: You can often send the check directly to the leasing company and avoid the dealership entirely, saving you from "doc fees" and sales pressure.