Should You Buy Your Car When Your Lease Is Up?

When You Should Buy Your Leased Car

Buying your leased car may make financial sense if:

The Lease Buyout Price Is Less Than the Market Value

Automotive websites such as Edmunds, Kelley Blue Book and NADA can give you an instant estimate of the car's value based on its make, model, year and mileage or by using its VIN. If the market value is more than the residual value projected at the start of your lease, buying the car could be a bargain.

The Car Is in Good Condition

If you've treated your leased car well, it hasn't had any major mechanical issues and it's in good shape cosmetically, you can buy it with more confidence than you would buying a used car elsewhere.

The Car Has Excess Wear and Tear

Counterintuitively, you might want to buy your leased vehicle if it's got a lot of cosmetic damage, such as torn upholstery, dented fenders or scratched paint. The lessor will charge you to repair these damages when you return the vehicle. You can avoid these fees by buying the car and fixing the damage later if it bothers you.

You Exceeded Your Mileage Limits

Leases commonly cap the number of miles you can drive every year at 10,000 to 15,000. When the lease ends, you're charged for every mile over the limit. If you exceeded your limit by 15,000 miles on a three-year lease with a $0.25 per mile fee, you'd be on the hook for $3,750 in excess mileage when you turn in the car. Buy the car, and you won't have to pay—or worry about how much you drive in the future.

You Didn't Hit Your Mileage Limits

At the other extreme, it may be worth buying your leased car if you're way below your mileage limits. Low mileage increases a used car's value and can extend its life, since there's less wear and tear on the vehicle.

You Love the Car

If you're crazy about your leased car, purchasing it could save you money compared to other vehicles of the same make, model and year. Even if the buyout price is a bit higher than that of comparable vehicles, it could be worth the extra cost to avoid the headaches of used-car shopping. Plus, you can rest easy knowing the car has been well cared for.

Learn more: How Much Car Can I Afford?

When You Shouldn't Buy Your Leased Car

Buying your leased car may not be a good idea in the following situations.

The Lease Buyout Price Is More Than the Market Value

If the car's market value is less than the residual value stated in your lease contract, buying it doesn't make financial sense. Unless the car is a perfect fit for your needs and you can't find similar used cars for sale, you'll generally want to return it.

Financing the Buyout Costs Too Much

Financing a used car is generally more expensive than financing a new one. Used car loans aren't as widely available as new car loans and usually charge higher interest rates. As a result, your loan payment could be more than your lease payment, even if the lease buyout price is low.

Tip: Use a car payment calculator to compare monthly payments, loan terms and interest rates and see how much different loans cost.

Learn more: Latest Used Car Loan and Financing Rates

You'd Rather Put Lease Equity Toward a New Lease or Purchase

If your car is worth more than its buyout price, you have lease equity. Depending on your lessor, you may be able to use lease equity as a down payment on buying or leasing a different car.

Learn more: Does Leasing a Car Build Credit?

The Car Needs Significant Repairs

If your leased car needs lots of work, you'll not only be paying to purchase the vehicle, but paying for potentially costly repairs. Searching for a used car that's in better condition could save you money.

Tip: Not sure whether to buy out your lease? Some dealerships let you extend your lease with the same monthly payments, typically for up to 12 months, giving you more time to decide.

How to Pay for Your Lease Buyout

If your budget allows, you can pay cash for your leased car, eliminating car payments going forward. If this isn't an option, follow these steps to finance the purchase.

1. Calculate the total cost. Ask the lessor if there are other fees in addition to the lease buyout amount, such as an early termination charge for buying the car before the lease ends.
2. Check your credit. Several months before your lease ends, check your credit report and FICO^® Score^Θ. If necessary, work on improving your score, which could help you get a better interest rate.
3. Shop for a loan. Boost your bargaining power with the lessor or dealership by getting preapproved for an auto lease buyout loan from a bank, credit union or online lender before talking to the leasing company.
4. Compare loan terms. Your lessor may want to arrange financing for you; if so, see whether they can beat the terms of your preapproved loan.

Tip: When buying a used vehicle, keep your loan term as short as possible. Longer loans cost more in total interest, and as the car gets older, you could end up owing more than it's worth.

Learn more: How to Get the Best Car Loan

Can You Negotiate a Lease Buyout Price?

You generally can't negotiate the price of your lease buyout. However, there might be some flexibility if you can provide estimates showing that the car's market value is less than the residual value in the contract.

Leasing companies are sometimes willing to bargain to avoid the expense and hassle of reselling the car on the lot or at auction. Others may lower the lease buyout price if you agree to finance the purchase with them.

If the lessor won't budge on price, see if you can get them to remove the purchase option fee.

The Bottom Line

Even if you love your leased vehicle, the decision to buy it when the lease ends should be based on more than a feeling. Carefully assess your budget, the car's condition and cost, and your financing options before you make the leasing company an offer. Whether you lease or buy your next car, maintaining a good credit score can make it easier to get favorable financing terms.