4 Things to Know Before Buying Out a Leased Car

Read time: 11 minutes

Have you fallen in love with the car you've been leasing? Maybe you want to take advantage of the equity you've put into lease payments and transition into car ownership.

Or maybe, unfortunately, you've been in a car accident and are looking for a pathway out of your lease so you're not charged additional damage fees.  

Whatever your reason for considering a lease buyout, you've come to the right place for all of the answers to your questions. We'll walk you through the most important things you need to know before buying out your lease — and empower you to make the best choice for your situation.  

Note: If you're ready to move forward and buy out your lease, simply enter your VIN or license plate to start the process online!

Table of Contents: 
1. What is a car lease buyout?
2. When does buying a leased car make sense?
3. What are my rights and responsibilities as a driver? 
4. How does the lease buyout process work? 

1. What is a car lease buyout? 

If you’re reading this, you probably know that leasing a car is not the same as renting a car. Do you also know why and what that means in terms of equity?   

Leasing vs. Renting   

When you rent something, you pay to use it for a certain amount of time, and you must return it when you're finished. For example, take a paddle boat: you pay to take the boat out on the pond for a couple of hours, but the rental payment can't go toward paddle boat purchase equity.  

But leasing, while similar to renting, is different.  

When you make your monthly payments, you're not just paying to use the car temporarily. You're also helping to offset the depreciation of the car's value. The good news? You may have equity in that car that you can access through a buyout.  

What is a lease buyout?   

A lease buyout is when you choose to buy your car at the end of your lease instead of returning it. You can either pay for it in full or finance it with an auto loan. 

Who is Involved in a Lease Buyout?   

In a lease, the manufacturer technically still holds the title to the car, meaning they’re the legal owner.  

Another important player in this is the lessor, also known as the lender or lien holder. The lessor is the financial institution that provided the loan for the car to your dealership.  

The final price to buy your leased vehicle will be determined by the lessor using their own methods. We cannot give you an exact amount. However, we can discuss what goes into these calculations and, more importantly, what that means for you and your leased car.  

How is the Buyout Amount Calculated?  

The buyout amount consists of three main components: the residual value, remaining payment obligations, and additional fees.   

• Residual value: At the start of your lease, the leasing company estimates the car's value at the end of the lease term. This is the residual value. Factors like the car's initial price, its expected depreciation, and the length of the lease determine it.  
• Remaining payment obligations: This includes any monthly payments you have not yet paid within the lease term, especially if you’re buying out a lease early.   
• Additional fees: sales tax (where applicable) and important vehicle protection coverage like Vehicle Service Contracts (VSC) and GAP insurance.   

Lease Payoff vs. Buyout  

You’ve probably heard “lease payoff amount” and “lease buyout amount” used interchangeably. This usually works, but there is technically a difference. Some sources say the distinction comes down to whether you buy the car at the end of the lease, or before the end of the lease. Here’s where we like to draw the line. 

• Lease Payoff (Amount): This is your leasing company’s “asking price” to buy out the vehicle. It includes the purchase price of the vehicle (based on its residual value), any remaining lease payments, and some fees or interest.  
• Lease Buyout (Amount): This refers to the total cost of a lease buyout (payoff amount + taxes & fees, registration, etc.). 

Is the Residual Value on a Lease the Buyout Price?   

While residual value is a factor in the buyout price, it’s not the only determining factor.  

Residual value, which is established in your lease contract, is basically the lessor’s forecast for what your car will be worth at the end of your lease.   

In other words, it’s a prediction of what dollar amount you (or the dealership) could sell the car for after the car has depreciated in value throughout your lease.   

2. When does buying a leased car make sense? 

Is it smart to buy out a lease?   

Like a lot of things, in life, it depends.  

When You’ve Fallen in Love with Your Vehicle  

Familiarity, comfort, and emotional attachment are common motivators for a lease buyout.  

If the car you’ve been leasing has been reliable and a great fit, you may opt to buy it having found the perfect vehicle for you.  

If the car has been part of special personal or family moments, like road trips or other sentimental experiences, over time it’s become a part of you — maybe it even has a name. 

When You Want to Retain Your Equity   

Like we alluded to earlier, you may have the opportunity to benefit from equity in your car.  

Equity refers to the portion of an asset that you own. For example, home equity is the portion of the home’s value that you own outright (basically, the part of the mortgage you’ve paid off).   

You also have potential equity in your leased car, which can be unlocked by buying out or selling the vehicle.   

We'll go into this more in detail later, but to put it simply, the equity you hold in your leased car is equal to the car’s market value minus the residual value. If the car’s current market value is higher than the residual value, you have positive equity in the car.  

When Your Leased Car Is Damaged or Over Mileage Limits  

If you turn the car back in at the end of your lease, the dealership gets to charge you for things like mileage-overages, damages, and restocking fees. 

Mileage-overage fees can be anywhere from 10 to 30 cents per mile. If your lease contract allows you to be charged an extra $0.20/mile exceeding your mileage limit and you drive even an extra 5,000 miles over your total lease-term limit, that’s an additional $1,000 that you’ll owe the dealership. 

Wear-and-tear fees can vary a lot more, and leasing companies will often provide a guide for lessees to help them assess damages before turn-in. Any damage to the car that doesn’t fall under ‘normal wear-and-tear’ will be added to your bill. If you got any unauthorized work done on the vehicle, you may be penalized for that, too.  

When You Think You Can Sell It for a Profit   

Remember how we said the lessor (or lien holder) gave your dealership a loan for your car when they originally purchased it? Your monthly lease payment helps cover that loan by paying off the car’s depreciation.   

Okay, but what does that mean?  

Well, your leased car is going to be worth a lot less at the end of the lease than it was when it was brand new. Let’s say your leased car’s market value was $40,000 when new, and now, at the end of your lease, it’s worth $20,000.   

If you turn your car back in to the dealership at the end of your lease, they’re not going to be able to sell it for $40,000. Instead, they’ll have to try and sell it for $20,000.   

Lessors have to take this depreciation into account when calculating your car’s residual value, and if their calculations are off, you — or your dealership — could make a lot of money off your leased car. Once the vehicle is back in their inventory, they can sell your car and make money off it if used-car values are high enough.   

The great news is, you can make this kind of profit too if you buy it out and sell it at a premium. Keep in mind, though, that you’ll need to pay for any taxes or fees associated with the sale.   

When You Don’t Want to Leave the House  

Whether you’re stuck at home out of necessity or convenience, we get it. Not only is it a huge hassle to get to the dealership, but no one likes waiting for paperwork or fielding sales tactics all afternoon.  

On one hand, you can take your back to the dealership and spend the time shopping around for a new one. On the other hand you can stay in the comfort of your home — and in the comfort of your current vehicle — and do your entire buyout with Lease End without leaving the house.  

Buying out a lease online means there's no need to go through the process of returning your vehicle, selecting a new one, or negotiating a new lease or purchase agreement.  

Ready to buy out your lease? Enter your VIN or license plate to start the process online.

3. What are my rights and responsibilities as a driver?  

If you’re pretty sure you want to buy out your lease, you’re almost ready to move forward. Before making any financial decisions, it's important to assess your current and future resources and needs.   

Locate Your Lease Agreement  

Familiarizing yourself with your lease agreement can help make your lease buyout go as smoothly as possible. Plus, this knowledge will arm you against any dealership attempts to take advantage of you for their financial gain.  

First, confirm that you can buy out your vehicle – if your contract doesn’t specifically say you can’t, you have the “right” to buy it out.  

Your lease information should also clue you into details that you’ll need to provide for your buyout, such as VIN or license plate, time left on the lease, and any payments still due.   

Scan your lease for any fees or rules associated with a buyout and make sure you understand all the terms. If you have any questions related to your specific lease, ask your lessor.  

Prepare for Car Ownership with VSC and GAP Insurance   

There are pros and cons to both leasing and owning a car. Ownership comes with many benefits, like:  

• No mileage restrictions. 
• Freedom to customize. 
• Full equity in the vehicle (once paid off).  
• Less maintenance restrictions. 
• No wear-and-tear inspections at turn-in. 
• Ability to re-sell if desired.  

With those benefits, though, also come responsibilities, including the following:   

• Ensuring sufficient insurance coverage.  
• Factoring in maintenance costs and logistics. 
• Monitoring depreciation and resale value, if applicable.   

This is where crucial coverage like VSC (Vehicle Service Contracts) and GAP (Guaranteed Asset Protection) insurance come in.  

VSCs provide warranty coverage comparable to a manufacturer’s warranty, but from a third-party provider offering more flexible coverage and plan options. When you buy out your car with Lease End, we use specific algorithms to offer you coverage that matches your driving habits and your coverage payments are built into your new monthly loan payment.  

If your vehicle is totaled, GAP insurance covers the difference between what you still owe on the vehicle and the vehicle’s actual market value.  

For example, if you got into an accident while you still owed $30,000 on your lease, your car insurance should cover the market value of the car. But if it’s only worth $25,000, you’d still owe $5,000 on the vehicle — a vehicle you can’t even drive.  

GAP insurance covers that gap so you don’t have to come up with the extra on your own.  

4. How does the lease buyout process work?   

Buying out a leased car with Lease End is quick and easy, unlike a buyout with a dealership. You can do it all from the comfort of your couch in just four simple steps:  

1. Tell us about your car: We’ll ask some easy questions about you & your lease to prepare for your purchase.  

1. View your loan & coverage options: Review your unique financing and customizable vehicle coverage options.  

1. Sign your buyout documents: We’ll prepare the documents you need and you’ll eSign securely on your Lease End account.  

1. Relax — we’ll take it from there: We’ll arrange titling, registration, & new plates for you so you can skip the DMV trip. 

If you buy out your leased vehicle through your dealership, your buyout amount will include the elements we’ve discussed already, including any fees the dealership decides to add on (like a restocking fee, mileage-overage fees if you went over your limit, etc.).   

The process will involve trips to both the dealership and the DMV, including scheduling an inspection, arranging financing, visiting the dealership, completing paperwok in person, and updating insurance and registration.  

Not to mention, dealerships have sometimes been known to tack unnecessary fees on transactions for profit — like a "Certified Pre-Owned (CPO) certification fee" up to $2,500 or a made-up $4,000 "Tri-State lemon law fee" a New York Nissan dealership was caught charging customers who bought out their leases.   

Again, an independent company (hey, like us!) can help you buy out your lease and refinance your car payments without the hidden fees and without leaving your house  

End your lease, keep your car.   

Understanding the ins and outs of a car lease buyout empowers you to make the right decision for your needs. It's not just about owning a vehicle; it's about knowing when it makes financial sense and aligns with your lifestyle.  

Or, to start the process online, enter your license plate number of VIN in the form below.

Need to do more research first? Check out our helpful library of resources:   
What You Need to Know About VSC and GAP Coverage 
What Happens if You Crash a Leased Car?  
How Can I Extend a Leased Car? Should I?