The Pros and Cons of an Auto Lease Buyout

October 18, 2023

Auto leasing remains popular as vehicle inventory improves, and interest rates rise. Along with a new car smell, lower monthly payments, and fewer out-of-pocket maintenance and repair costs, it’s easy to see why drivers are eager to sign their name to a lease agreement. But all good things must come to an end, including leasing periods. While some consumers may choose to return the vehicle to the dealer and purchase or lease another car, many are choosing an auto lease buyout.

 What Is an Auto Lease Buyout?

An auto lease buyout allows you to buy a leased vehicle at the end of the leasing period for a preset amount. The exact amount is determined at lease signing and is typically the expected fair market value of the vehicle, plus taxes and fees. If the car you’ve been driving for the past few years has proven dependable, holding on to it for the long term might seem like the best option. However, as with most financial decisions, consider the pros and cons before deciding.

 Pros of an Auto Lease Buyout

Borrowing less is one way to protect your finances from rising interest rates. With auto loan rates double what they were a few short years ago, lessees point to this as one of the primary reasons for considering an auto lease buyout. The buyout amount is often less than the cost to purchase a comparable new or used vehicle. This typically results in fewer borrowing costs due to the lower loan amount.

Plus, buying your leased vehicle could allow you to benefit from:

  •  The ability to negotiate a lower buyout amount based on market conditions.
  • Potentially selling it back to the dealership at a higher price and pocketing the difference.
  • A predetermined end to car payments, providing a specific date you can redirect payments toward other financial goals.
  • The freedom to drive a vehicle as much or as far as you want, e.g., with no vehicle mileage restrictions or associated penalty fees.

 Cons of an Auto Lease Buyout

Securing a loan to purchase a leased vehicle could keep you in the financial driver’s seat, but you might hit a few potholes if you’re unprepared. Since the responsibilities that come with moving from a lessee to a buyer can be substantial, it’s crucial to understand potential drawbacks, including:

May result in higher monthly payments. Auto loan payments are higher than lease payments because they’re calculated based on the total buyout amount. Lease payments are determined using just the expected vehicle depreciation during the leasing period.

Unexpected lease-end inspection costs. In addition to potential excess mileage fees, lessees are also responsible for excess wear and tear on the vehicle. The lessor defines standards of “normal” wear and tear. These costs could reduce the overall financial benefit of an auto lease buyout. Review your lease agreement for applicable fees.

Significant out-of-pocket costs. The lease contract likely includes routine maintenance and repair coverage at little to no cost. But as the owner, you are now responsible for paying for these items. Vehicles that are expensive to maintain or are known for high-cost repairs could spoil an otherwise sound auto lease buyout.

Consider other expenses on the horizon. College tuition, retirement or potential job layoffs might affect your ability to manage a successful auto lease buyout.

Is an Auto Lease Buyout Right for Me?

If you’ve met your contract obligations, you don’t have to choose a buyout and can either return the vehicle and commit to a new lease or say no to monthly auto payments by choosing other forms of transportation. Pursuing alternative commuting options, such as public transit, carpooling or an electric bike could help you save for a substantial down payment on another vehicle. The more money you put down, the less you may need to borrow. Depending on where you live, there may be limited access to alternative transportation.

An affordable vehicle that meets your needs might already be parked in your garage. Ultimately, the best option will depend on your financial situation and goals.