How to lease a car with the option to buy

This article was co-authored by Hovanes Margarian. Hovanes Margarian is the Founder and the Lead Attorney at The Margarian Law Firm, a boutique automotive litigation law firm in Los Angeles, California. Hovanes specializes in automobile dealer fraud, automobile defects (aka Lemon Law), and consumer class action cases. He holds a BS in Biology from the University of Southern California (USC). Hovanes obtained his Juris Doctor degree from the USC Gould School of Law, where he concentrated his studies in business and corporate law, real estate law, property law, and California civil procedure. Concurrently with attending law school, Hovanes founded a nationwide automobile sales and leasing brokerage which gave him insights into the automotive industry. Hovanes Margarian legal achievements include successful recoveries against almost all automobile manufacturers, major dealerships, and other corporate giants.

There are 11 references cited in this article, which can be found at the bottom of the page.

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Leasing is a good option if you don’t have the money for a down payment, or if you want to avoid a car loan. With a lease, you can get a new car and pay monthly lease payments. At the end of the lease period, you have the option to buy. [1] X Expert Source

Hovanes Margarian
Attorney Expert Interview. 15 September 2020. You should do your homework ahead of time so that you can negotiate a lease with confidence.

For anyone facing an expiring car lease, it’s decision time: either buy the car from the finance company or return it and find a new set of wheels. Deciding what to do with your current vehicle is always a personal choice. Maybe you really like your current car and feel like keeping it. Or, perhaps, you’ve decided to buy rather than lease your next one and are considering choosing a used car this time.

Key Takeaways

  • When it’s time to get a new car, buying and leasing are the two main ways to drive away with a vehicle.
  • Buying, whether with cash or with a loan, means you own the car 100%. Over time, owning a car can be more cost-effective—but you’ll also have to pay for repairs and upkeep.
  • A lease may come with lower monthly payments than an auto loan, but you’ll only be able to keep your car for a few years—and you’ll typically also face mileage restrictions.
  • With a lease, however, you will always experience a relatively new vehicle every time you renew.

Buying a Leased Car: Key Considerations

The leasing firm’s asking price is obviously a key factor. There are also some overall benefits to purchasing your existing car. For one, you know the car’s history, which is an advantage most used car buyers don’t have. This is especially true if you’ve pampered the car while it was in your care.

Are you the type of driver who meticulously goes in for an oil change when it’s due? Do you keep your car in a garage year-round to maintain an immaculate finish? If so, you’ll be buying a car that you know is in excellent shape.

Ironically, buying the automobile can also be a plus if you haven’t treated the car particularly well. Most leases include extra fees for unusual wear and tear on a vehicle, which may show up during the inspection. Keeping the car is a way to stave off that extra expense.

Those who put a lot of miles on their car may also save some money by purchasing it when the lease comes to an end. These contracts typically have an annual mileage limit; if you go over, you’re assessed a fixed charge for any extra miles. Take, for example, a three-year lease with a 12,000 mileage limit. By the time the lease expires, the leasing company is expecting you to return the car with fewer than 36,000 miles on it.

But let’s say you make long trips on a regular basis and racked up 45,000 over that stretch. If your lease has an overage fee of $0.15 per mile, you’ll have to pony up $1,350 when you return the car; some overage fees can reach $0.25. By purchasing the car, you don’t have to worry about that additional surcharge.

How Much Does it Cost to Buy a Leased Car?

Of course, these potential benefits are only part of the equation. For most drivers, the biggest question—after “Do I want a new car?”—is whether the purchase price constitutes a good deal. The majority of leases will include a “buyback price,” the amount you’ll have to pay if you’d like to hold onto the car. It’s a quirk of the leasing industry that this buyback price is actually determined before you begin your lease.

The reason is that, in order to determine your monthly payments, the leasing company has to estimate how much the car will depreciate during the course of the contract. Your monthly outlay is essentially the sale price of the car minus its residual value when the lease is up, divided by the number of months on the contract.

Take a sedan that goes for $25,000 new. Over three years, the leasing firm projects that the car will be worth $15,000. That $15,000 residual value becomes the basis for the buyback price. Some leases contain a buyout fee, which can take make the final price slightly higher.

But here’s the thing: Sometimes the company’s estimate is off. It’s hard to predict all the factors that can affect resale value years ahead of time. Before deciding whether to buy your leased car, you’ll want to compare the buyback price from your lease to the current resale value of the car.

Sources such as Kelley Blue Book, Edmunds, and NADAguides are good places to start. To get the most accurate prices, make sure you enter all the options your car has, where you live, and the exact number of miles on the odometer, as well as an honest assessment of the condition of the car.

Some experts suggest using the “private-party” price to steer your decision rather than the higher dealership cost. If you can acquire the automobile for less than its current market value and you like the car, buying it from the leasing company probably makes financial sense. But even if it looks like you’d be overpaying slightly at first glance, buying the car can still be a good idea.

Say the vehicle has a buyback price of $20,000, and a similar car is worth $19,000 from a private seller. For some folks, the fact that they know the car inside and out might make up for a slightly inflated price tag.

If the driver faces mileage charges when they return the car to the dealership, the decision gets even easier. Suppose the overage fees total $1,500. If you factor in these fees, the true cost of buying a similar car elsewhere is actually $20,500—more than the price of the buyback.

Negotiating the Price

In most cases, haggling with the leasing company won’t bear much fruit. This is especially true of brand-specific leasing companies, which have a reputation for standing firm on their buyback price. If the leasing company is a bank or credit union, experts say you might have better luck.

Bear in mind that these lenders have to unload that car somehow, either by selling it to a dealership or putting it on the auction block. Sometimes, they’re looking to avoid the time and expense that goes along with selling the car to a different buyer. As such, it might be worth finding out who’s underwriting your contract and try to negotiate.

The Bottom Line

Deciding what to do with your leased vehicle sometimes requires a little math. It’s a good idea to compare the buyback price to what the car would go for on the open market. Don’t forget to factor in any additional charges, such as mileage fees that could make buying the car more attractive.

Should you decide to buy the car and would need to take out a loan to do so, it’s important to consider what kind of price, down payment, loan term, and interest rate you can afford. An auto loan calculator can be a huge help in this endeavor.

Here’s how long typical car loans or leases last, and why it matters


How to lease a car with the option to buy

This is part of a series breaking down all the terms you need to know if you’re buying a new or used car from a dealership. Check out the rest of the series at our Car Buyer’s Glossary.

Few people pay for a new-car purchase with a 100-percent up-front cash payment, so the two most often-used methods of getting a new car are leasing it, or getting a loan from either a bank or a financing company. Both the lease and the payment plan are structured to last through a certain amount of time, often several months or years. That agreed-upon length is called the term of the lease or the term of the loan.

What’s the difference between a lease and a loan term?

Essentially, a lease is paying money over an extended time period to rent a car, while a loan is slowly paying money toward eventually owning the car. All other things being equal, a lease will cost less per month because you’re only paying for what you use, and you don’t retain ownership in the car after the lease term is over. The term of a lease is usually 24 to 36 months. The average new car loan in the United States now stretches to 70 months.

A payment plan for a loan is completely different, as the customer largely has the say in the length of the loan. The most common loan term is 72 months, but even longer loans are becoming common. These loans offer smaller monthly payments, which are attractive to many shoppers, and usually require smaller down payments.

A lease has certain perks. There will likely be a lower up-front down payment, lower monthly payments, and as the lease will coincide with the vehicle’s warranty, maintenance and repair costs will be limited. It also allows for easy turnover to a new vehicle after a short time. However, downsides often include mileage limits, excess wear charges and other fees and conditions that can add hundreds of dollars at the end of the lease. And, of course, you don’t get to keep the car (unless you exercise a clause in the lease agreement to purchase it) or make any money back when it’s time to return it.

With a loan, you actually own the car at the end of the term. That means you can sell it or trade it in, and extract whatever value is left out of the vehicle. Or you can keep driving it as long as you’d like. There are no mileage limits, of course, but it’s not strictly yours until the loan is paid off and you get the title.

How to lease a car with the option to buy

What’s better: short-term or long-term?

In practical terms, all leases are short-term, lasting two to three years. A lease can occasionally extend up to five years, but it is unusual.

Longer loans tend to be costlier in the long run since you’ll be paying more in interest. Those interest rates also tend to be higher. It’s also important to note that research has shown buyers tend to tire of cars after about 6.5 years. That’s 79 months . just a few months after a 72-month loan would be paid off.

A shorter loan will mean a higher down payment and larger monthly payments, but will cost less in the long run.

What is a fair term for a customer?

One might think it’s better to go with a plan that has cheaper monthly payments, but it’s actually best to keep loans short. Less time owing anybody money for anything is always a good move – it usually reduces the interest rate, lowers the total amount of interest paid, and lets you own it outright (and perhaps sell it) sooner. It’s therefore best to aim for a 36- to 60-month loan as it should deliver the best overall deal – lower total interest payments, a lower interest rate, and a term that better fits the length of time most people own a car. Frankly, if you can’t afford the resulting monthly payment, that car is probably too expensive.

Now, if you think you’ll be ready for a different car within a few years, you’ll want to do a few things. First, consider a lease. If you’re the type of person who likes a new car every two or three years, you’re exactly the type of person for whom leasing makes the most financial sense. That said, before choosing a lease, consider if you might have any upcoming life changes. You’d hate to be in year two of a sports car lease when the triplets are born. There are some ways to get out of a lease, but none are ideal or particularly easy.

Yet, even if you’re sure you’ll keep the car longer than average and get every penny’s worth out of it, consider a shorter loan term and the total costs rather than focusing on monthly payments. It’ll put what you can actually afford in more realistic terms.

Cars that are over eight years old would have to go for a fitness test. A green tax of 10-25 percent would be charged every time you renew the fitness certificate. Maintaining a car would more expensive now

How to lease a car with the option to buy

In a bid to keep polluting and old cards off the road, finance minister Nirmala Sitharaman announced the arrival of a vehicle scrappage policy, in her Budget 2021 speech. Cars that are over 15 years old would be required to undergo mandatory emission tests. If your car fails this test, you will no longer be allowed to drive it.

Cars that are over eight years old would have to go for a fitness test. If they fail this test, you would not be allowed to drive the car on the road anymore. But if your car passes this test, a ‘green tax’ (roughly 10-25 percent) would be charged every time you renew the fitness certificate, which itself would be valid for five years. In other words, holding on to older vehicles may become a more expensive proposition. Granular details of the scrappage policy are awaited.

What is car leasing?

While leasing a car, you get to ride a brand new model from the manufacturer’s portfolio. Car companies offer lease for periods ranging from 12 to 60 months, depending on the city and model.

Leading car makers such as Mahindra & Mahindra, Maruti Suzuki, Hyundai, BMW, Volkswagen and Skoda have been giving car models on lease in India with minimal or no down payment.

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For instance, a Maruti Suzuki customer can take one of WagonR, Swift, Dzire, Vitara Brezza, Ertiga, Ignis, Baleno, Ciaz, XL6, and S-Cross on lease. The lease is available with varied mileage options of 10,000 kms to 25,000 kms annually and 12-48-month tenures. You get Wagon R, for a monthly rent of Rs 12,513 and Ignis for Rs 13,324 in Kochi (including taxes). The lease is for a period of four years.

“The lease allows a customer to use a brand-new car without actually owning it. The customer needs to pay an all-inclusive monthly fee that comprehensively covers maintenance, 24*7 roadside assistance and insurance for the complete tenure,” says Shashank Srivastava, Executive Director, Marketing and Sales, Maruti Suzuki India.

Suvajit Karmakar, CEO & Whole-time Director of ALD Automotive India, a car leasing firm, explains that car leasing appeals to millennials “who may not see want to own a depreciating asset. Millennials are more prone to changing cars every 3-5 years.”

Sunil Gupta, MD and CEO of Avis India says that car leasing has a penetration of less than one percent in India, as opposed to around 45 percent in countries such as the US. He expects the car leasing market in India to grow by 15-20 percent over the next ten years.

Adhil Shetty, CEO of, says that since the vehicle scrappage policy is aimed at discouraging owning vehicles for longer periods, leasing a car would become more attractive than even buying a used car.

Whether to buy a car or lease?

Leasing a car means that you do not own it. “The lease is also limited to a few years, and there may not always be an option to buy the vehicle after the lease period is over from the car maker,” says Shetty. Once you drive your leased car a specified number of miles, you have to surrender it to the company.

A lease may also be less attractive in the long term, especially if you are able to buy a car without taking a loan. You also cannot customize a leased car, unlike your own vehicle.

But if you like changing your car models every few years, leasing is a good way to do that. “Customers can upgrade their models once the lease scheme is over; you can exchange your car for another model of your choice,” says Veejay Nakra, Chief Executive Officer of Mahindra & Mahindra (Auto Division).

Also, the monthly payment for a lease is considerably less than what it would be for a car loan. This means you can opt for a high-end car you otherwise may not be able to afford. Buying a car with a loan is cheaper compared to the leasing option in the cases of entry and mid-entry segments. “Currently, leasing is still an expensive proposition in certain car segments. For this to take off, leasing will have to become cheaper for the cost benefits to become more visible,” says Shetty.

Amol Joshi, founder of financial advisory firm Plan Rupee Investment Services says, “After repaying the loan, you will be the owner of the car and can resell it in the market. So, you get to earn certain resale value of a car in case purchased on loan. In a leased car, you don’t have an option of resale.”

While buying a car with a loan, the EMI will eventually end, but in car lease, monthly payments won’t stop until the car is returned to the manufacturer.

Harshvardhan Roongta, Principal Financial Planner at Roongta Securities says, “Car leasing is recommended to individuals/families on the move from one city to other, with jobs of short tenure (one to three years). They will save on add-on costs, which include registration of the car with the regional transport office (RTO) and other miscellaneous charges while purchasing a car.”

How to lease a car with the option to buy

Is Now the Time to Buy Out Your Car Lease? | graphic by Paul Dolan

It’s no secret that there’s a shortage of used cars right now, nor that used-car prices have increased significantly. The median used-car price at dealers was $21,998 in June, up $5,099 — or 30.2% — versus June 2020. If you have a leased car or truck, it likely will be worth more at the lease’s end than the “residual value” that was written into your lease contract when you got the car.

“Residual value” is the leasing company’s best guess of what the vehicle would be worth when you turned it in. That value was a major factor in determining your lease payment. But in the meantime, production of new cars was hit first by the COVID-19 pandemic, and now the new-car inventory has been impacted by the semiconductor chip and other supply shortages. Having fewer new cars with higher prices has increased demand for used cars, lowered supply and caused values to jump.

The older your lease, the further off the residual value might be. If you just give the car back at the lease’s end, the leasing company gets to pocket that gain in value over what they thought the car would be worth. But there are ways to capture some of that gain for yourself if you make a move soon — prices go down as well as up, and the current inventory shortages will more likely be measured in months rather than years.

One wild card to keep in mind: When considering various options for buying, selling or trading in a leased car, be sure to carefully research the sales tax rules in your state for what you want to do. States have different and complicated rules for taxing vehicle purchases, leases and lease buyouts. You don’t want to end up sending the bulk of any gain to the tax collector.

Do the Math

You’ll need to do your research to figure if these trends apply to your leased vehicle. Prices for the most popular SUVs — and particularly for pickup trucks — have risen more than other vehicles. Vehicles with a higher original price tag might also show a wider spread. If your leased car hasn’t had a big runup, you can just finish the lease and walk away.

You can research the approximate value — either trade-in or private party sale value — with online calculators, or you can get a more precise value by taking it to a dealer for a trade-in or purchase offer. You also can get an offer online from a local dealer through here.

Compare these valuations to the lease buyout price — generally the sum of the residual value in the contract, the payments you still owe and any “disposition fee” (an end-of-lease fee many contracts require). Your leasing company can quote you the buyout total. The difference between what you’ll owe and the vehicle’s current value is your equity in the vehicle, a measure of your potential gain.

What Next?

Now that you have an idea of how much money is on the table — and whether it’s going to be worth the trouble — there are ways, depending on your situation and vehicle needs, to try to tap that equity for yourself. Among your choices:

Keep it. If you like the vehicle and it meets your needs, the easiest choice is to just buy it from the leasing company. You’ll be getting a discounted price — a used car worth more than you’ll be paying for it — and you won’t find another used car you know more about than the one you’ve driven and cared for. You’d have to pay a premium in this market to get a different car, purchased or leased. Buying it also puts an end date to the continuous payments that come with leasing.

You don’t have to wait out the lease. You can call your leasing company and ask for the early buyout price. Also check on the sales tax treatment in your state for a buyout. If you don’t have the cash on hand, many lenders who make auto loans and auto refinance loans also make lease buyout loans. Your leasing company might also make a pitch for your loan business but — as always with any new credit — be sure to shop around to get the best interest rate.

Return it without fees. End-of-lease “disposition fees” can be $350 or more. Excess mileage can cost 25 cents per mile. Minor body dings and wheel scuffing could add more. The car’s increased value gives you some leverage to negotiate these fees with the dealer, particularly if you’re in the market for a new lease or purchase, too.

Sell it. This is trickier, but it beats just giving the vehicle back if your equity is substantial and, in some cases, you won’t have to buy the vehicle yourself to be able to sell it or use it as a trade-in. Reasons you don’t want to keep the vehicle yourself might be that you don’t like it, you’re straining to make the payments, or your post-pandemic life has changed in ways that mean you don’t need the vehicle or you need a different type of vehicle. Among your options:

  • The easiest might be to simply sell it to a new-car dealer or a local or online used-car dealer — they really want cars right now. It’s a process not unlike selling a vehicle you still have a loan on. It’s not likely to get you the highest price, but you save remaining lease payments as well as get a check for your equity, and the dealer can handle the details.
  • If you want to replace the leased car, use it as a trade-in. You don’t have to come up with money to buy it first (including for taxes) and your additional equity gets applied to your new ride. As with any other trade-in, you need to ready negotiate the trade-in’s price as well as the new vehicle’s price — and be willing to go to more than one dealer. Since you’ve already carefully researched the leased car’s value and your equity, you’re in a good position to recognize a fair offer.
  • A private-party sale could bring you a higher price than other options, though not necessarily more net profit if you need to buy the car first to avoid a complicated selling process that might put off a stranger. Some leasing companies, which often are automaker finance arms, will allow a so-called “third-party buyout” to sell the leased car to someone else. But a large number won’t allow it, and others set a higher buyout price for third parties.
  • You could take the opportunity to pass along a good used car to an interested friend or family member. Some states offer favorable tax treatment for title transfer within families; whether you also pass along your gain is up to you.

There’s a lot at stake when you decide between leasing and buying a vehicle.

The big factor is money — how much will you spend on buying or leasing a vehicle and how much can you potentially save in the short- and long-term?

But there are other issues, too. Do you want to drive the same car, truck, or SUV for 10 years, or would you rather mix it up and switch vehicles every two or three years? Would you like to test-drive a car you really like for two years, then buy it outright?

Or, do you drive so infrequently that your mileage is so low on an annual basis, that it makes more sense to lease rather than buy, and put less wear and tear on your vehicle (and on your pocketbook?)

The key in deciding whether to lease or buy really comes down to three big issues: money, time and your unique driving experience (and which of those two options best meets that experience.)

How Leasing Works

While most adult Americans know the basics of owning a vehicle, leasing is more of a mystery. Before we get into the pros and cons of owning versus leasing a car, let’s get up to speed on what leasing a vehicle really means.

Leasing has a lot going for it, from a consumer finance point of view. The down payment is usually lower on a leased vehicle, as is the monthly payment. You get to turn in the car after the lease has run out (usually after two or three years), and get inside a new set of wheels.

  • How to Get Out of a Car Lease Early Without Penalty
  • All-New or Year-Old Cars: What’s The Better Value?

On the downside, you don’t own the car, so you’re basically making those monthly payments on a rental basis. Also, auto companies usually put strong restrictions on leased vehicles — especially on mileage (the more you use after the limit, the more you pay), maintenance (turn in a vehicle at the end of the lease that’s not in good condition and you’ll get a bill for the repairs) and the quality of your credit score, which can affect your buying versus leasing decision.

To actually lease a vehicle, you’ll need to take these steps:

  • Educate yourself. Launch your vehicle lease campaign by examining the different types of vehicles that interest you. Make sure to check out the factory invoice price (i.e., what the dealer paid for the vehicle) and start going online and visiting dealer lots to see who’s offering the best leasing deal.
  • Start negotiating. The conventional wisdom says you can’t negotiate the price on a leased car, truck or SUV. That’s not always accurate. Once you’ve identified a potential lease, go into the experience knowing you actually can negotiate price. When you talk to the dealership, or talk to the representative at an online auto site like Vroom or, let them know you’ve done your homework, and you know how much you want to pay for a leased vehicle. Begin your negotiation on the vehicle’s total sales price — and not the monthly payment. You’ll likely get a better offer that way, as monthly payments include costs that may not make it into the opening price of the vehicle.
  • Don’t be surprised by upfront fees. Those up-front fees are a fact of life for auto lease consumers, so don’t be shocked when the topic comes up. Just like buying a car or truck, you’ll be facing upfront costs, like the vehicle’s first monthly payment, taxes, title, tags and registration — and usually a security deposit, too.
  • Manage your down payment. When you put a down payment on the table, that’s a check you’re not going to get back as a vehicle-leasing consumer. Given that reality, the thinking here is that keeping your down payment low is a good idea. That’s because an inflated down payment of, say, $3,000, might be unnecessary, especially if you’re short on cash and need the money. In that instance, a $2,000 down payment may make more sense — you’ll still get the vehicle, but you’ll have that extra $1,000 in your bank account. That could be worth the added $20 per month you may have to pay for the lease with the lower down payment.
  • Read the fine print. Auto lease contracts are loaded with fine print and legal mumbo-jumbo. That’s because auto dealers know they may be getting the car back after the lease is over, and they want it back in pristine condition. Dings, scratches and (hopefully not) major repairs will come out of your pocket, so you’ll want to understand potential costs and restrictions when the vehicle is returned. The same goes for mileage limits. If your lease contract calls for a maximum odometer reading of 30,000 miles after a two-year lease, any mileage over that will trigger cash penalties, as well. Also, it’s worth knowing if you turn the vehicle back in before the lease return date, that will lead directly to a hefty early termination fee — also paid out of your pocket.
  • Purchasing your vehicle after the lease is over. Inevitably, your auto dealer will ask (or strongly encourage) you to buy the vehicle once the lease is up. The fact is, the dealership doesn’t want the car, truck or SUV on the lot — not when they have a live buyer in you, who’s already invested so much time and cost into the vehicle. Just beware that the price they’ll likely offer will be significantly higher than its market value. Be savvy — a few months before the end of the lease do some research and come in with an offer lower than the market price (find that price on, or Rather than take the vehicle back on the lot, the dealer may well go for the deal.

Five Benefits of Leasing

Leasing a vehicle definitely has its advantages, and those benefits usually start with costs — among other perks:

1. It’s less expensive

Both the down payment needed and the monthly payments are typically lower when leasing a vehicle, compared to buying a vehicle. The reason? In a lease deal, you’re paying for the vehicle’s depreciation — and not the entire cost of the vehicle.

How to lease a car with the option to buy

In this article:

  • How Does a Lease Buyout Work?
  • When Should You Buy Your Leased Car?
  • How to Pay for Your Lease Buyout
  • Can You Negotiate a Lease Buyback Price?
  • To Buy or Not to Buy Your Leased Car

When your auto lease ends, you have a few options: Turn in the car and buy or lease a new one, or buy the car you’re leasing from the leasing company. If you’ve fallen in love with your leased car, you may be tempted to buy it. Whether that’s a good idea or not depends on its value, condition and mileage, as well as your budget. Here’s how to decide if a lease buyout makes sense.

How Does a Lease Buyout Work?

Like buying a car, leasing one typically involves making a large upfront payment and smaller monthly payments over the lease term (generally two or three years). The key difference is that a vehicle becomes yours when a loan is paid off, but you won’t own a leased car when its lease is up. At the end of a lease, you return it to the lessor, who sells it through a dealership or at auction. They may also give you the option to buy it.

A few months before your lease term ends, the leasing company will usually contact you to explain the end-of-lease process and schedule inspections before you turn in the car. This is a good time to start thinking about whether you want to buy your leased car. Don’t tell the lessor your plans just yet, though—you’ll need to do some research first.

Lease agreements typically list a purchase or buyout price. This cost is commonly a combination of the vehicle’s residual value (the vehicle’s projected end-of-lease value that’s determined at the beginning of the lease) and a purchase option fee the leasing company may charge. Unfortunately, the lease payments you’ve made on the car don’t go toward buying it, so you’ll have to either come up with the cash on your own, or secure financing that covers the vehicle’s buyout price.

When Should You Buy Your Leased Car?

Does buying your leased car make financial sense? Ask yourself these questions to decide.

  • Can you afford a cash buyout or will you need a loan? Consider your budget and use an online auto financing calculator to estimate your car payments for various loan terms and interest rates. Since the vehicle you’re buying is already a few years old, try to keep your loan term as short as possible. Longer loan terms mean lower payments, but you’ll pay more in interest and could even end up with negative equity—that is, owing more on your loan than the car is worth.
  • Is the vehicle worth buying? To see if the car is really worth the residual value listed on the lease, use the appraisal tools on Edmunds, Kelley Blue Book, NADA and other automotive websites. Research what local dealers and private parties are asking for the same make, model and year of car. Take the average of all those prices to come up with an estimate. If the car is worth more than the residual value projected at the start of your lease, buying it could be a bargain. If it’s worth less, you may not want to buy it unless you can negotiate a lower buyout price.
  • What’s the condition of the car? If you’ve taken great care of the car and had few mechanical issues, you can buy it with more confidence. Counterintuitively, it might also make financial sense to buy a leased car with dents, scratched paint, torn upholstery or similar damage. When you turn in a leased vehicle with excess wear and tear, the lessor must fix it before selling it, and you’ll pay the price. By purchasing it, you’ll avoid this fee. You can always repair the damage later if it bothers you.
  • Did you exceed your mileage limits? Leases commonly limit the number of miles you can drive every year without penalty. This limit is typically between 10,000 and 15,000 miles, but high-mileage leases are available. At the end of the lease, you’ll be charged for every additional mile driven. 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.

Also consider any other savings or costs from buying a leased car. For example, you’ll generally pay less for registration and insurance for an older car than a newer one. However, older cars are typically more prone to mechanical problems and need more maintenance than new ones, which could mean higher repair costs.

How to Pay for Your Lease Buyout

Once you’ve decided to buy your leased car, the next step is financing the lease buyout. Leasing companies and dealerships may offer to arrange financing, but you’ll boost your bargaining power (and potentially save money) by getting preapproved for a car loan from a bank or credit union before you approach the leasing company.

To get the best financing offers, check your credit report and credit score several months before your lease ends. If your score is lower than you expected, improving your score before you shop for a loan can help you get a better interest rate.

Once your credit score is shipshape, you can start going over your financing options and submitting loan applications. It’s wise to submit multiple preapproval applications to a variety of lenders to shop around for the best interest rate. Credit scoring systems generally treat multiple loan applications in a short period as one application, so submit all your applications within a two-week period and they’ll be combined into one hard inquiry as far as your credit scores are concerned. Alternatively, getting prequalified for a loan will give you a ballpark idea of your financing costs without any impact to your credit.

Can You Negotiate a Lease Buyback Price?

Depending on the lessor, you may not be able to negotiate the price of your lease buyback. However, some leasing companies are willing to bargain to avoid the time and costs involved in reselling the car on the lot or at auction. Others may be willing to reduce the price if you finance the vehicle with them so they can keep you as a customer.

Use the research you’ve gathered to show that the car’s residual value is lower than that in the contract. If the lessor won’t negotiate on price, see if you can get them to remove the purchase option fee. Are you preapproved for financing elsewhere? See if the leasing company will match or beat the offer.

To Buy or Not to Buy Your Leased Car

You may be crazy about your leased vehicle, but the decision to buy it when the lease ends should be based on more than just emotion. 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 will make it easier to get favorable financing terms.

How to lease a car with the option to buy

How to lease a car with the option to buy

How to lease a car with the option to buy

Start preparing for the end of your Toyota lease now to avoid any unnecessary fees and complications.

As your lease-end date closes in, what do you need to do?

In this simple guide, we outline the Toyota lease-end options and what you can expect.

Table of Contents

Option 1: Return Toyota Lease

One lease-end option is to return your Toyota without purchasing or leasing another one. If you plan to return your leased vehicle to Toyota at the conclusion of your lease you should:

  1. Schedule your free inspection 15-60 days prior to your lease ending.
  2. Complete any required repairs. Let Toyota Financial Services know when repairs are complete, and they will order another inspection for return.
  3. Schedule your return appointment with the originating dealer at least 30 days before lease-end.
  4. Bring your keys, owner’s manual, all original equipment, and the toolkit/spare tire to the inspection and return.
  5. When the dealer records the mileage, check and then sign the Odometer Disclosure Statement.
  6. You will receive a Lease End Invoice for any unpaid payments or fees. This invoice will include any charges for wear and tear, excessive mileage, etc.
  7. You will receive your security deposit back (it is first used to pay lease-end invoice charges)

Option 2: Purchase Toyota Lease

Another option at the end of your lease is to purchase the leased vehicle. If you choose this option, beginning preparing 90 days before your lease-end. The steps for purchasing your leased vehicle include:

  1. Communicate your interest in purchasing the lease with your dealership to learn more.
  2. Contact Toyota at (800) 286-0652 for your payoff amount and the sale documents.
  3. Mail your payment and documentation to Toyota. However, some states require you to purchase the vehicle directly from the dealership.
  4. You do not need to have a vehicle inspection when purchasing the lease.

Option 3: Return Lease and Lease New Toyota

The final option is to return your current leased vehicle and then lease a new one. Here’s what you need to do:

  1. Head to to explore new models. Check out current Toyota deals here.
  2. Schedule a test drive at your local dealership.
  3. 15-60 days before the lease-end, schedule your complimentary inspection.
  4. Make any necessary repairs with an approved repair shop.
  5. Ensure all our payments and fees are paid. Here you can cancel the recurring payments as well.
  6. Schedule your lease return appointment.
  7. Bring all original equipment and keys to the return appointment.
  8. Sign the Odometer Statement.
  9. Select your new Toyota.
  10. Complete your new lease and enjoy a waived disposition fee.

Option 4: Extend Toyota Lease

Toyota does not list lease extension as an option. Based on individual dealers, you may or may not be able to extend your lease. For example, Toyota Vacaville states that “you have three different paths you can take at the end of a Toyota lease, and, unfortunately, extending the lease is not one of them.”

On the other hand, Southeast Toyota lists extension as an option for a few months. You must request a lease extension with them.

To find out about extending a lease, talk with your Toyota dealership and find out if they offer lease extensions.

Toyota Lease-End Fees

Here are the fees you may face at the end of your Toyota lease:

Outstanding Payments

If you have any outstanding payments, they will show up on your lease-end invoice. Your security deposit is used to pay them, and you will be responsible for any remaining balance.

Wear and Tear

Wear and tear is a normal part of driving a vehicle. Some minor wear and tear is permitted and will not result in additional charges. However, excessive wear and tear will lead to extra charges at the end of your lease. The cost of this fee depends on the extent of damage, but you may be able to find guidelines in your lease term.

Head to this Toyota guide for a breakdown of the cost of various forms of wear and tear.

What Constitutes Wear and Tear?

Toyota created a helpful guide to explain wear and tear for leased vehicles. They recommend using a credit card as a guide to check for excess wear and tear damage.

Some examples of excessive wear and tear include:

  • Dented or scratched bumper
  • Broken mirrors
  • Damaged windshield
  • Exposed tire cord and damage to alloy wheel
  • Cut seats
  • Fabric burns
  • Missing accessories
  • Broken electronic equipment

Disposition Fee

Dealerships charge a disposition fee to recondition the vehicle and prepare it for resale upon your lease return. Disposition fees vary, but on average, you can expect between $250 and $400.

Excessive Mileage

Leases include a mileage limit, generally around 12,000 miles per year. If you exceed the allotted mileage on your lease, you must pay an excess mileage fee. On average, Toyota charges between $0.15 and $0.25 per mile over your allotted miles.

The allotted miles and the fee will be outlined in your lease. Depending on how many miles you plan to drive, it may be worth considering a high-mileage lease.

Toyota Lease-End Benefits

If you choose to lease or finance another Toyota, they will waive the disposition fee on your current lease. To qualify, you must lease or purchase a new or Certified Used Toyota within 30 days of returning your current lease.