Should I Buy Out My Lease? (And How?)
In today’s market, buying out your lease could be a good alternative to leasing a new replacement vehicle, given the sky high prices of new cars due to the global semiconductor shortage.
Here’s what you need to know about purchasing your leased vehicle.
Is this a vehicle you want to keep?
In deciding whether to buy out your lease, first consider whether you like the vehicle. You’ll be driving it for at least another few years.
Is the vehicle in good shape? Has the car been reliable, or has it been troublesome? Do some research on the predicted reliability of your vehicle, as well as on the remaining duration of the powertrain and bumper-to-bumper warranty. If you’re keeping the vehicle past its warranty expiration date, then you’ll want something relatively reliable and inexpensive to maintain.
If the car was involved in a collision, then it may be a good idea to return the vehicle, since its resale value has been diminished.
What is the current value of the car?
Look up the current value of your car, factoring in mileage and condition, and compare it to the purchase option price stated in the lease contract.
Used vehicle retailers such as Carvana, Shift, and CarMax can provide an instant quote online. It only takes a few minutes to see how much you can sell your vehicle for.
If the purchase option price is higher than the current value of the car, then it’s probably not a good idea to buy out your lease. Conversely, if the purchase option price is lower than the market value of your vehicle, then it might be a good idea to consider buying it—provided you like the vehicle.
Don’t intend on keeping the car?
If your intention is to get a new vehicle, you should still look up the value of your current vehicle. If its actual value is a lot higher than the purchase option price, you can consider buying out the lease to sell to a third-party later.
Keep in mind you’ll need to pay sales tax when you purchase your leased vehicle, even if you intend to resell it later. (California has a sales tax exemption if you manage to sell the vehicle within 10 days.)
Consider selling the leased vehicle to a dealer
You can also sell your leased vehicle to a dealer. Such transactions are exempt from sales tax, and the dealer will handle the paperwork and send you a check for the equity you had in the lease.
Most captive lenders now only allow lessees to sell their vehicle to a dealership of the same brand. For example, only a BMW dealership can purchase a car leased through BMW Financial Services.
For the time being, only Toyota Financial Services and a few other lenders allow lessees to sell or trade their vehicle to any dealership, including third-party retailers like Carvana, Shift, and CarMax.
In either case, it’s worth shopping around to see which applicable dealership will pay the most for your leased vehicle.
Beware of junk fees when buying out your lease
The lease-end purchase price is stated in the lease contract—it’s the residual value originally used to calculate your lease—and the lender is contractually obligated to honor it, plus a nominal purchase option fee (usually around $300) and any official taxes and fees.
However, depending on your state’s laws and the lender, you may be required to conduct this transaction through a dealership, rather than to purchase the vehicle directly from the lender.
For example, GM Financial customers in Arizona, Arkansas, Colorado, Florida, Hawaii, Kansas, North Carolina, Pennsylvania, South Dakota, and Vermont cannot purchase their vehicles directly from GM Financial. Residents of these states will need to visit a GM dealership to purchase. Nissan Motor Acceptance Corporation (NMAC) instructs lessees, regardless of state, to buy out their lease at a Nissan dealership.
A dealer-assisted buyout can be convenient; the dealer will handle all DMV paperwork, and they can sell you finance and insurance (F&I) products such as financing and extended warranties.
The downside of a dealer-assisted buyout is that dealers view this as yet another opportunity to sell you more things and make more profit.
Consumers have reported dealers charging exorbitant buyout fees on top of the contractual purchase option price, sometimes in the thousands of dollars. You will also pay dealer document fees, which range from $85 in California (the maximum allowed by the state) to about $800 in Florida (the state has no rules on the maximum doc fee allowed).
In any case, it’s a good idea to shop around for the lowest total buyout cost, if you are pursuing a dealer-assisted lease buyout.
If you need financing, you may also want to consider financing through a credit union, which may have more favorable finance rates than a dealer.
Browse the Leasehackr Forum
Finally, if you are pursuing a dealer-assisted buyout, browse the Leasehackr community for dealers who will facilitate the transaction at no cost, or minimal cost, and offer competitive finance rates and reasonably priced F&I products.
This article contains affiliate links from Carvana.