Buying a Car After the Lease Is Up: What You Need to Know

Have you been hearing stories about people buying out their leases and selling the car for more?

Jim’s brother in law, Matt, recently told him that he was able to buy out his lease and sell the car for several thousand dollars more than the cost of the buy out. And Matt only thought to do this because his dad did the same thing – bought out the lease on their car and then sold it as a third-party transaction.

With the cost of used cars skyrocketing, this strategy is gaining more popularity.

Now if you’re leasing a vehicle, you may be considering whether to buy it out at the end of the lease term for a variety of reasons. Sometimes it’s to sell it like Jim’s brother in law but sometimes you just want to own the car.

Is buying a car after the lease is up a good idea?

The answer to that question is that it depends on various factors. In this article, we’ll cover several important car lease buyout questions. We’ll explain how car lease buyouts work, when you should consider them and when you shouldn’t. 

How Does a Car Lease Buyout Work?

When you lease a car instead of buying it, you’re doing so knowing that you will either need to return the vehicle or buy it out at the end of the term. The lease buyout amount is set when you sign the lease agreement and takes into account the expected residual value at the end of the lease term.

Depending upon the lease terms, you may have to pay extra when you turn in the vehicle.

For instance, you may have to pay if you’ve gone over the mileage limit set by the leasing contract or if there is excessive damage to the vehicle. 

The leasing company determines the residual value by analyzing several factors, including its perceived marketability at the end of the lease, its reliability, and more. 

It’s a legal requirement that the vehicle’s residual value must be established at the beginning of a lease contract if a buyout is an option on the lease. Typically, the lease buyout amount is non-negotiable, although it never hurts to try negotiating if you’re considering buying out your lease. 

Once you’ve decided to purchase the car you’ve been leasing, you’ll need to choose a finance option if you don’t have the cash on hand.  

How Should I Finance a Car Lease Buyout?

You will typically have several options for financing your car lease buyout, depending on how good your credit score is.  Consider the following advice when financing your lease buyout. 

Beware of Leasing Company “Deals”

There’s a good chance that the company or dealership you’ve leased your vehicle through will offer to finance your buyout. 

The good news is that they make it very convenient. The bad news is that you might pay a lot more to buy out the car than you have to. Leasing companies often charge high-interest rates and fees to borrowers who just want to get the deal done. 

That’s why it’s so important to read the buyout financing terms and conditions.

Shop Around for the Best Terms

Your best bet is to shop around for the best terms before you complete the duration of your lease. Check both online lenders and local banks and credit unions to find the best car loan rates you can get. 

Even if your credit isn’t great, you may not have to settle for an astronomical interest rate for your car loan.

Exercise due diligence and see what the best deals out there are for your situation. Make sure you take all fees into account, not just the interest rate.

Pay Cash if Possible

In an ideal world, you would pay cash for your lease buyout. Paying cash may seem like a lofty financial goal for many.

However, if you plan ahead you can get it done. Ideally, you would start putting a set amount of money aside each month for the car purchase as soon as you sign your lease agreement. 

If that’s not an option, consider selling things you have around the house. You can use several apps to sell your stuff online or locally. Or, you can use side hustles to earn money fast.

At the very least, you can choose the best financing option and then sell and side hustle like crazy to get the loan paid off as soon as possible. 

Now that we’ve covered financing options, let’s talk about whether or not you should buy a car after the lease is up. 

Here are some things to consider before you make your decision.  

When Should I Consider a Lease Buyout?

Buying out a car lease isn’t always a good idea. Here are some things to consider before you decide to return the car or purchase it when the lease expires.

1. The Car Is Worth More Than the Buyout Price

If the buyout price is much lower than the car’s blue book value, you may want to consider buying the vehicle. 

Check the blue book value for yourself by going online to the Kelley Blue Book website or a similar site with a trusted reputation. Don’t take the dealership’s word on the value.

The best chance you have of getting a buyout price that’s lower than the vehicle’s value comes when you’ve taken great care of the car.

For example, it has lower mileage than most vehicles its age. Scratches, dents, and dings are minimal or non-existent. 

If you’ve taken great care of the car and it has a higher blue book value than what they are requesting for the lease buyout amount, you’ll have instant equity in the car.

That instant equity can make it a wise purchase choice for you.

2. You Love the Car and It’s Been Good to You

If your car lease is about to expire, you’ve likely been driving it for a few years now. Do you love the vehicle? 

Has it been a good runner with minimal mechanical problems? Does it fit into your list of needs and some wants? 

Is it a vehicle you’d like to keep for a few more years?

If so, you may want to consider the buyout option. However, you should still consider the price. You want to ensure that you’re getting an offer price close to blue book value. 

3. You’re Facing Large Penalties

If you’re facing a few thousand in penalties for mileage, damage, or other wear and tear factors you’ve inflicted on the vehicle, you may want to spend that money to buy the car instead.

The primary consideration here is the blue book value of the car. Let’s do a little fictitious math to give you an example. 

Car value: $15,000

Buyout amount: $15,000

Penalties: $3,000

So, you can either pay $3,000 in penalties and walk away with nothing, or avoid the penalties and buy the car for roughly what it’s worth.

In this case, you may want to buy out the car – you can always turn around and sell it later on.

Even if you have to take a $1,000 price reduction on the vehicle, you’re still coming out better than if you paid the $3,000 penalty.

Here’s another example.

Car value: $10,000

Buyout amount: $15,000

Penalties: $3,000

In this case, you’re likely better off paying the penalties. If you buy the car, you’re $5,000 in the hole, but paying the penalty “only” leaves you $3,000 in the hole.

4. You Know Someone Who Wants to Buy the Car

The third reason you may want to take advantage of the lease buyout is that you already have a buyer on the line. Let’s say that a friend or family member has been watching you cruise around in your leased vehicle for the past couple of years.

It’s a good enough vehicle, but you’re not interested in buying out the lease. However, your friend, family member, or co-worker is. 

If they agree to pay a price that can net you a bit of a profit, why not buy the lease out and turn around and sell them the car? They’ll get the vehicle they want, and you’ll put a little bit of cash in your pocket. 

Next, let’s talk about when it’s not a good idea to consider a lease buyout.

When Should I Not Consider a Lease Buyout?

There are a couple of reasons you may want to avoid buying a car after the lease is up, no matter how much you love it.

1. When the Buyout Price Is Significantly Higher Than the Car’s Value

If the buyout amount is several thousand dollars above the vehicle’s value, you’re probably better off letting it go. 

You don’t want to pay thousands over blue book value for the car when you could probably find the exact car at a lower price somewhere else. 

There is something to be said for knowing the history of the car you’re driving. If you want to hold onto the vehicle for that reason, At the very least, try to negotiate the buyout amount based on the blue book value difference.

2. When the Car Doesn’t Fit Your Long Term Needs

Another situation where you might not want to buy the car is if it won’t fit your long-term needs. 

For instance, let’s say you’re leasing a small sedan as your family car. If your third child is on the way, you may want to consider turning in the leased vehicle and looking for something with more room.

While you may not need the larger vehicle right away, there’s a good chance you’re going to want something larger sooner rather than later. 

Be sure to look at all of the factors before making your decision and make the lease buyout decision that’s best for your needs and your financial situation. 

Final Thoughts

There are times when buying a car after the lease is up is the best choice. The decision of whether you should lease or buy a car in the first place is a whole other matter. But never assume that you should buy out your lease, as there are several factors to consider before you make your decision. 

Use the guide above and consider the car’s buyout amount, the blue book value, and other factors to help you make the right decision for your needs.