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Lease Buyout Loan: How to Buy Out of Your Car Lease

Prices for quality used cars remain high. If you’re approaching the end of your car lease you could be sitting on a bargain if you choose to buy out your vehicle rather than trade it in.

Below, we take a detailed look at how car lease buyouts work and the potential advantages and disadvantages of doing this. We’ll consider things to keep in mind when buying out your car and explain when it might make more sense to keep your lease.

We’ll also examine the importance of securing good, affordable financing if you choose to buy out your vehicle and make it your own. Read on to learn more!

Prices for quality used cars remain high. If you’re approaching the end of your car lease you could be sitting on a bargain if you choose to buy out your vehicle rather than trade it in.

Lease to Own: How to Buy Out Your Leased Vehicle

Leasing a car is often the most convenient way to secure a good, reliable vehicle, but there may come a time when you want to own your car outright and stop making monthly payments.

Choosing to own your car through a lease buyout gives you the freedom to use your vehicle however you like and means you'll have a valuable asset to sell or trade in when you want to upgrade. Here’s how it works.

What Is a Lease Buyout

A lease buyout is when you pay your leasing company an agreed amount of money to end your lease contract and transfer the ownership of the vehicle to you.

In your lease agreement, you'll find the car has been given a residual value based on what your leasing company predicted the car would be worth at the end of your lease. This estimated value takes into account depreciation (the loss of value over time).

In general, leasing companies estimate a new car will lose 20% of its value in the first year and 15% for every subsequent year.

Lease buybacks usually make the most sense when used car prices are high. In cases like this, the market value of your car could be significantly higher than the residual value that was calculated and locked in at the start of your lease.

How Does It Work?

Is the residual value on a lease the buyout price you will eventually pay? It’s not quite as simple as that. When you buy out a leased vehicle, you’ll need to pay:

  • Your car's residual value
  • The total remaining lease payments
  • Any early payment fee or other charges required to end your lease early

The specific conditions covering lease buyouts will vary between lenders, so it’s important to check the fine print of your lease agreement before doing anything.

For example, dealers will include restrictions on how soon you can buy out a vehicle after leasing it. Many will also charge a penalty for buying out a vehicle early or will apply various transaction fees to process the buyout.

Your total buyout price is the combination of your residual value, the balance of your remaining lease payments, as well as any prepayment fees or other charges.

Pros and Cons of a Lease Buyout

While the details may vary depending on your residual, the used car market, your lease terms, and your personal finances, potential advantages of buying out a leased vehicle may include:

  • Saving money over having to buy a similar vehicle from a dealer or private seller
  • Owning a vehicle you're already familiar with and are comfortable driving
  • Avoiding end-of-lease penalties related to mileage limits or wear and tear

That said, there are also some important potential disadvantages to buying out a leased car. These include:

  • Prepayment penalties and other lender fees
  • The full cost of maintaining a high-mileage vehicle
  • Owning an older vehicle rather than upgrading to the latest model
  • The cost of selling your vehicle, either immediately or in the future

What to Consider Before Buying Out Your Lease

Think a buyout might make sense for you? Be sure to do your homework first. Specifically, you need to weigh what you stand to save by buying out your lease against all the potential costs you might incur. Here are the critical factors you need to consider.

Your Car’s Value

To find out what your car is worth on the current market, enter the details into Best Rewards’ Auto Buying Center here. Compare this with the residual value your dealer estimated your car would be worth at the end of its lease period.

Outstanding Payments

If you want to buy out a car before the end of the lease, you will need to pay the outstanding balance of payments as a lump sum.

Prepayment Penalties

Many dealers charge a prepayment penalty if you want to buy out a car before the end of the lease. They might also charge processing or transaction fees on the deal.


If you added significant miles to the car while you were leasing it, you may need to pay excess mileage charges – from $0.10 to $0.25 per mile – so buying out your lease could be a way to avoid this penalty.

Keep in mind that a car with high mileage may need more maintenance and repairs, and you'll be paying for all expenses once you're the owner. On the other hand, if the car has low mileage, it will have a better resale value or a longer potential use life.

Wear and Tear

If the car has taken a few knocks since you've been leasing it, you may be hit with repair, cleaning, or reconditioning fees. Buying out the lease could also help you sidestep these fees.

Other Costs

When you buy out a vehicle, you also must pay your state’s sales tax on vehicle purchases, plus registration fees.

If you choose to sell it immediately to pocket the difference in value between the market and residual value, be sure to include repairs, detailing, dealer commissions, tax, and other costs associated with selling a vehicle.

What Is Better - Leasing or Buying a Car?

You’ll need to consider all of these factors to determine if a lease buyout is going to save you money or end up costing you.

All things being equal, lease buyouts make the best sense when the market value of your car is significantly higher than the residual value estimated by your dealer. This can happen if:

  • Used car prices increase dramatically
  • Demand for your car model increases
  • Interest rates fall, making it cheaper to finance a vehicle

Your personal needs and financial situation also make a difference. There are several situations when leasing a car might become less appealing.

  • You may need to travel more frequently and cover more miles, thereby potentially paying for mileage in excess of the lease agreement.
  • Changes in your income or savings may make it easier to buy your car outright to sell it or access more affordable financing, rather than continuing to lease.
  • You may have married, started a family, embarked on an advanced degree, or retired—all reasons to rethink your monthly expenses and look toward saving money in the long term.
  • You want to own a valuable asset outright you can use and sell at your discretion.

On the other hand, it might be wiser to keep your lease if:

  • You need a car only for a shorter period of time.
  • You want to drive the latest model with the best features.
  • You are familiar with and prefer the features of your current leased car to those of an updated model.
  • You want a reliable car that you do not need to maintain yourself.

How to Finance Your Lease Buyout in 7 Simple Steps

Unless you are able to buy your leased vehicle outright, you will likely need auto financing to own your car. Here’s how to do it:

1. Review the Lease Agreement

Review your lease agreement. Look for the residual value of the car and check the provisions for buying out your vehicle at the end of the lease, as well as any restrictions or prepayment fees related to buying out your lease early.

2. Assess Vehicle Condition

Check the market value of your vehicle at its current age and mileage. Is it significantly more than the residual value in your lease agreement?

Also, take a hard look at the condition of your car. If it has exceeded mileage limits or endured more than normal wear and tear, buying the car could help you avoid end-of-lease penalties.

3. Research Financing Options

If leasing does not make sense, then look at your financing options - and don't just settle for the ones provided by the leasing dealership. Shop around for car lease buyout loans from various financial institutions.

Look for competitive interest rates and terms that fit your budget. Credit union lease buyout loans often come with better rates and more flexible terms than big commercial banks, and offer a more personal approach than online or specialist auto lenders.

Compare loans carefully, and apply for pre-approval from the offer you decide is best.

4. Talk to Your Leasing Company

Once you've done your homework, contact your leasing company to request a lease buyout package. The offer should include residual value, any remaining payments, and prepayment penalties or other fees associated with ending your lease early.

5. Compare Loan Offers

Now that you know the final buyout cost of your car, compare loan offers from several lenders. In each case, consider the down payment, annual percentage rate (APR), loan term, and monthly payments you’ll be required to make.

6. Finalize the Buyout

Once you’ve settled on the best financing option, contact your leasing company to initiate the buyout process. You'll need to complete the paperwork and coordinate with your lender to ensure the funds are transferred to the leasing company.

7. Handle Taxes and Fees

Lastly, remember you are responsible for additional costs like sales tax, registration fees, and any other state or county taxes. These will be in addition to the buyout price.

Why Buy Out Your Car Lease Now?

Deciding whether a car lease buyout is the right move for you depends on a clear understanding of your personal needs, financial situation, and an accurate assessment of your car’s potential market value versus its buyout cost.

If, however, you can buy out your leased vehicle, the sooner you do it, the better. Why? Because, unlike the money you spend every month on your lease, payments on an auto loan go towards reducing your loan balance and building your ownership stake in your vehicle.
Swapping lease payments for an auto loan lets you start building equity in your vehicle sooner. That means you’ll own more of your vehicle every month and therefore will get more money back in your pocket whenever you choose to sell.

Best Reward FCU: Your Smart Auto Financing Option

The difference is clear: at the end of your vehicle lease, you will own nothing. But as you pay down an auto loan, you steadily build your stake in the vehicle until it is all yours.

Get on track for financial success with affordable auto loan financing from a credit union that cares about your success. At Best Reward Federal Credit Union, we offer our members quality financing for new and used cars, including:

  • Low, fixed-rate APRs on all our loans.
  • Flexible terms from 24 to 72 months to fit your budget.
  • Online application and signing.
  • Access to our no-hassle Auto Buying Center

Contact us today, or click below to learn how a Best Reward FCU auto loan can help turn your vehicle payments into vehicle ownership.

View Our Auto Loan Options & Low Rates