What Is an Auto Lease Buyout Loan?

What Is an Auto Lease Buyout?

Auto lease buyout loans are used to finance the purchase of leased vehicles when the lease term is up. When you lease a vehicle, you’re essentially renting it for a lengthy period of time, typically 24 to 48 months. You’ll make monthly payments during the lease term and may also make a down payment at the beginning of the lease.

Unlike with an auto loan, you don’t take ownership of the vehicle when the lease contract ends. However, you may be able to buy the car from the lessor instead of returning it. If this is an option, your lease will include a buyout price, which is the amount it will cost to purchase the vehicle at the end of the lease. The buyout amount is listed in the lease agreement and generally isn’t negotiable.

Suppose your two-year auto lease is coming to an end, and your car’s buyout price is $25,000. If you want to purchase the car, you can pay cash or get an auto lease buyout loan to cover the cost. The dealership or leasing company may offer to arrange an auto lease buyout loan for you. You can also shop around for auto lease buyout loans from banks, credit unions and online lenders to see which lender offers the best loan terms.

When to Buy a Leased Car

Whether or not buying a leased car makes financial sense depends on several factors. Here are some situations when buying your leased car could be a good idea.

The Buyout Price Is Less Than the Market Value of the Car

You can check the market value of your leased vehicle using online tools available from sites like Edmunds, J.D. Power and Kelley Blue Book. You’ll need the vehicle’s make, model, year and mileage, or you can use the license plate number or vehicle identification number (VIN). If the car’s buyout price is less than its market value, you’d be getting a good deal.

You Love the Car

People often lease cars so they can always drive a newer vehicle. But if you’ve fallen in love with your leased car, buying out the lease could be more affordable than purchasing a newer model. Sure, you might be able to find the same make, model and year of car for a bit less in the used vehicle market. However, buying your leased car saves you the hassle of car shopping and provides peace of mind the vehicle has been well cared for and properly maintained.

The Vehicle Has Excessive Wear and Tear

Before returning a leased vehicle, you generally need to repair minor cosmetic damages yourself or pay for the dealership or leasing company to fix them. If you can live with a small dent in the car’s fender or a few stains on the upholstery, buying your leased car instead of returning it could save you some money. You can always fix minor damages later if you so choose.

You Face Excess Mileage Penalties

Leases typically have strict mileage allowances; exceeding these limits can mean pricey penalties when you return the car. Check your lease’s mileage allowance and excess mileage fees to see what you might owe. Driving 12,000 extra miles during a three-year lease charging 25 cents per excess mile leaves you on the hook for $3,000. That’s $3,000 you could put toward a lease buyout instead. If you regularly log a lot of miles, owning a car instead of leasing means no worries about how much you drive.

When Not to Buy a Leased Car

In some situations, buying out your auto lease may not be a good idea.

The Buyout Price Is Greater Than the Market Value of the Car

Paying more for a car than it’s worth doesn’t make financial sense. If the buyout price of your leased car is higher than the car’s market value, you probably don’t want to buy it unless there’s a shortage of comparable vehicles on the used car market.

Financing the Buyout Costs Too Much

Financing a used car typically costs more than financing a new vehicle. Used car loans generally charge higher interest rates, and you may have fewer loan choices than you would when financing a new vehicle. The average interest rate for a new car loan is 6.84%, according to Experian’s State of the Automotive Finance Market report from the second quarter (Q2) of 2024. By comparison, the average interest rate for a used car loan is 12.01%. A car payment calculator can help you compare payments and see how much interest you’d pay over the life of the loan.

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

If your car’s trade-in value is higher than its buyout price, you have lease equity. This might be a reason to buy the car, but you may have other options. The dealer or leasing company might let you apply lease equity toward a down payment on a new car or lease. This can be a way to save money on a new vehicle.

Alternatives to an Auto Lease Buyout

If buying out your lease doesn’t fit your needs, you have plenty of alternatives.

• Get a new lease. Turn in your leased vehicle and lease a new car, either from your current leasing company or another lessor. This option lets you keep driving a new car every few years, so your ride always has the latest bells and whistles.
• Extend your current lease. If you can’t make up your mind about buying out your lease or are waiting for newer-model cars to hit the dealership, you may be able to buy some time by extending your lease. In most cases, lease extensions are limited to 12 months; monthly payments usually stay the same.
• Buy a new car. Purchasing a car instead of leasing typically costs more upfront but less in the long run. When your loan is paid off, you’ll no longer have monthly car payments. Buying a car also gives you greater freedom than leasing: There are no mileage limits, you can modify the vehicle any way you want, modifications, and you can trade it in or sell it and pocket any profits.
• Buy a used car. If you like the idea of owning your car but the cost of a new car is beyond your budget, purchasing a used car can offer a happy medium. The average used car payment is $525—more than $100 less than the average new car payment—according to Experian data.

The Bottom Line

There are many roads to getting the car you want. Whether you buy out your lease, lease another car, or buy a new or used car, a good credit score can help you qualify for more favorable loan or lease terms.

Getting prequalified for an auto loan can give you an estimate of how much you can borrow and how much it will cost without affecting your credit score. Alternatively, you might opt for preapproval, which can give you a more accurate idea of loan amounts and costs but requires a credit check that can temporarily ding your credit scores. While preapproval doesn’t guarantee loan approval, it carries more weight when negotiating with the auto dealership or leasing company.

It’s a good idea to check your credit report and credit score about six months before your auto lease ends. If your score isn’t where you’d like it to be, taking steps to improve your credit could save you money on your next auto loan or lease.