The buyout price is already set
Your lease contract names the residual value, and that is the price you may buy the vehicle for at the end. It was fixed on the day you signed, based on a prediction made years earlier.
That prediction can be wrong in either direction, and when it is wrong in your favour the option is genuinely valuable. Lessees who signed before the used-car price surge of the early 2020s frequently found their cars worth thousands more than the contracted buyout.
Nothing obliges you to exercise it. If the car is worth less than the residual, you hand back the keys and the leasing company absorbs the difference — which is the protection you were paying for all along.
Check the market value against your residual a few months before lease end. The gap is yours either way: as equity if it is positive, as a problem avoided if it is not.
What the buyout actually costs
Beyond the residual, expect a purchase option fee — often a few hundred dollars — and sales tax on the buyout price, which varies by state and is separate from any tax you already paid on the lease.
Against that, buying usually waives the disposition fee, and it removes any exposure to mileage overage or excess wear charges. If you are over on miles, that alone can swing the decision.
Financing it
A lease buyout loan is a distinct product from a standard used-car loan, and rates differ between lenders. It is worth shopping rather than accepting the captive lender's offer by default.
You are also not limited to buying it yourself. Some lenders permit a third-party buyout, where a dealer purchases the vehicle at your residual — which is one way to convert equity into cash without taking on a loan. Policies on this vary and have tightened in recent years, so confirm before planning around it.
Common questions
- How is a lease buyout price calculated?
- It is the residual value written into your contract, set when you signed as a percentage of MSRP. Add the purchase option fee and sales tax on the buyout to get the total cost.
- Is buying out a lease a good idea?
- It depends on whether the market value exceeds your contracted residual. If it does you have equity, and buying also avoids disposition, mileage and wear charges. If the car is worth less than the residual, returning it is usually better.
- Do you pay sales tax on a lease buyout?
- In most states, yes — on the buyout price, and separately from any tax charged on the lease itself. The treatment varies by state.
Put it to work
Run the numbers on a real deal — with your state's actual tax treatment and security deposits included.
Related
Residual value
Residual value is what the bank predicts your car will be worth at lease end, set as a percentage of MSRP. It is not negotiable, and it drives more of your payment than the interest rate does.
Read →Mileage & wear
What overage actually costs, whether to buy miles up front, and how excess wear is assessed when you hand the car back.
Read →