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The buyout option at the end of a car lease can be an attractive opportunity or a tool for damage control.
What is a lease buyout? Essentially, you are buying a used car you know and like, at a price set by the leasing company at the beginning of your contract. If you’re anticipating extra fees and penalties, buying the car can cut your losses. Or, if market conditions have changed since you signed the lease and you’ve lightly driven the car, you could turn the hidden lease equity in your vehicle into real savings.
Now that you know the numbers, here are the times when you might want to stay with old faithful.
1. You're way over — or under — the allowed mileage
Most lease contracts are for three years and 36,000 miles. If you're over, you'll owe money; if you're under, you could leave money on the table.
“Why pay two or three grand in mileage penalties and have nothing to show for it?” says Matt Jones, a senior consumer advice editor at Edmunds.com. “Not only that, but buying the car will save you the disposition fee,” the charge to prepare the car for resale, which is usually $350-$500.
But also check your contract for purchase option fees (typically about $350), charged by some leasing companies, and factor that into your decision.
Conversely, returning a car you drove only 10,000 miles, when you paid for 36,000 miles is like handing the dealer a big check. Instead, buy the car and use the value you’ve paid for, Jones says. Or you can get a no-haggle appraisal at online car buyer such as Carvana or Vroom (or at a dealer, although this could involve some haggling). If the numbers break in your favor and the under-mileage car is worth more than the buyout price, you could buy your car to sell for a profit.
2. Your car has excess wear and tear
If your car has a collection of indiscretions — scrapes, dings or tears in the upholstery — you could be looking at penalties for excess wear and tear. But if you buy the car, you won’t be charged for the damage or the disposition fee, and you can fix the bumps and bruises when, and if, you want, says Paul Maloney, owner of Car Leasing Concierge.
3. Your car is worth more than its buyout price
In some cases, your car may increase in value for reasons not anticipated when the buyout price was set in the lease agreement. If the car is worth more than the buyout price, it can provide an opportunity to buy the car, sell it and pocket the difference.
If your car’s market value is less than the buyout price, it typically isn’t a good idea to buy it. However, you might consider buying it if the leasing company offers to lower the buyout price and you want to keep the car. A lender may do this to eliminate its own shipping and auction fees.
4. Your friend wants to buy your leased car
If you buy the car then sell it to a friend, you’ll have to pay sales tax. Instead, see if the finance manager at a local dealership will do a "lease pass-through," says Scot Hall, executive vice president of operations for Swapalease, which matches leaseholders with car shoppers looking to take over a lease.
Basically, the dealer buys the car from you and immediately sells it to your friend. You aren’t charged sales tax and the dealer makes a few hundred dollars for moving paper. But be aware: Your warm body without a car in a car dealership means that you're probably in for a sales pitch.
5. You like the car and don't want the hassle of car shopping
Maybe, you think, it’s time to stop being a serial leaser, jumping from one leased car to another, always having a monthly car payment. If you like your car, compare the buyout price to the retail price on Edmunds.com and Kelley Blue Book. If it’s a fair deal, skip the dealership and send the lease company a check.
Keep in mind, however, that you won’t be protected by the bumper-to-bumper warranty which is typically for three years and 36,000 miles. But the powertrain warranty, covering major parts like the engine, transmission and suspension, might still be in effect.