For many car shoppers, leasing a car can be a smart way to “own” a vehicle. The payments are lower, you’re likely driving a newer car and as a result, you avoid most maintenance costs. There could come a time when you decide you’d rather own a vehicle than turn in the lease. But can you negotiate a lease buyout?
The simple answer is yes, you can negotiate lease buyouts. What does that look like, when should you do it and what makes the process go smoother? Here’s what you need to know.
What is a lease buyout?
The process of converting a vehicle lease into a purchase is known as a lease buyout. At the start of a lease, you, the lessee, sign a contract to make payments for a predetermined period of time, such as 36 or 48 months. The contract specifies a maturity date that gives you two options: return the car and walk away or buy out the lease. But there’s another option for buying out a car lease before it has matured.
What is a lease-end buyout?
At your lease maturity date, you have an option to return the car or buy it out. The buyout amount was set at the start of the lease based on the vehicle’s expected residual value when the lease ends. The payments you made are roughly based on the difference between the car’s original price and the residual value.
Buying at the end of a lease won’t just be continuing on with the same payments. A purchase option fee for a few hundred dollars usually applies, plus you either need to have the cash on hand to pay for the car or have the ability to finance the buyout amount. You also need to change the name on the title after buying out a lease, with fees depending on the state where you live.
What is an early lease buyout?
Buying the car mid-lease is possible but not quite as clear-cut a process. The residual value will need to be determined to establish the buyout amount, and that puts you at the mercy of the leaseholder to calculate. You do have an opportunity to negotiate lease buyout amounts, though.
Fees to end your lease early apply, even if you’re buying the car out. Expect a cost of between $200 to $500 for an early termination fee. Similar to a lease-end buyout, financing arrangements and name change fees apply.
Can you negotiate a lease buyout?
A car lease’s contract terms seem hard and fast, including the residual value or buyout amount, but trying to renegotiate the terms is worth a try. What matters most for successful negotiation? It has to appear beneficial for both parties.
Most lessees would think end-of-lease negotiations are best done at the dealership because that’s where you turn in your car. But that’s not always the case. Dealers have limited capacity, if any, to change the buyout amount. They’re also likely to try incentivizing a new car purchase or lease instead, because that’s more in their favor (but not necessarily yours). Dealerships have the option to buy out the lease themselves before sending the car to auction, doubling their profits by selling you a new one and retailing your lease return as a used car.
When is buying out a car lease most effective? If you’re going to be over your mileage limit or there’s excessive damage to the car, an early lease buyout might be better. If the leasing company finds out you’re over on mileage or they stand to collect a fistful of cash on other penalties, they aren’t going to play ball as easily. But if you’re within your mileage range, waiting to see if your car’s actual value is lower than the residual value could be a bargaining chip for negotiations because the lender doesn’t want to be stuck with a lease return worth less than the residual.
Tips for negotiating a lease buyout
Going into a lease buyout negotiation and asking if the leasing company will discount the car for you isn’t going to work. Getting the best price, whether during end-of-lease negotiations or an early buyout, requires strategy. A bit of luck in the automotive market helps as well. Here are six tips.
Keep tabs on your car’s value throughout the lease
If there’s the remotest possibility you’ll consider a lease buyout, track your car’s market value throughout the lease term. Understanding what your vehicle is worth at any point in time behooves you, especially if you need to figure out if an early buyout makes sense.
“A good rule of thumb is to negotiate a price if you want to buy early, before the term is up, by looking at what the car is worth at that time vs wholesale book value,” said Holly Springs, NC-based auto financing specialist Kristine Cain. “If you give the dealer more than what they would get at the auction, they may take it.”
The best way to try and assess your car’s market value is by running a vehicle history report on it.
Consider the cost of major maintenance items
The upcoming costs of maintenance items such as transmission fluid changes, timing belt replacement, new tires and out-of-warranty repairs can be factors in buying out a lease. They can work in your favor for buying a car after the lease is up, too.
Dealers don’t want to pick up the tab on those costs either. If you’re keen on keeping the car, mentioning the cost of those services during the dealer’s reconditioning process could be a way to negotiate a lower residual price and discourage them from keeping the car.
Line up financing options
The thought of losing valuable back-end revenue from financing can be enough to inspire dealers and leasing companies to play a little nicer in negotiations. Prearrange financing with your own lender and get it in writing, then introduce the option when you approach the dealership or leasing company. If there’s wiggle room in the lease buyout, they might bite.
Wait until maturity if you can
You’ll usually be contacted within 90 days of an impending lease maturity. If you approach the dealer or leasing company before they contact you, they may take that as a position of power in negotiations. If you initiate contact, you could be seen as really wanting the car (you do!) or at risk of penalties or fees (you might be!). If you have the time, wait until they contact you and don’t show your hand.
Deal directly with the leasing company
If you end up having to make the first contact for some reason, start with the real decision-maker: the leasing company. Dealers are limited in modifying the terms of a lease—aside from maybe waiving fees—and they’ll have to contact the leasing company for approval.
Support your negotiations with data and reason
Attempting to buy out a car lease at a discount without being able to support your position is ill-advised. Has the market dropped out for your type of vehicle? Obtain comparables in your area online to show it. Have there been incidents such as insurance claims for hail that have diminished the vehicle’s value? Provide a vehicle history report.
Compare the residual value with a car depreciation calculator as well, aiming to support your desire to pay less. This is especially effective for mass-market brands and lower-cost vehicles.
“Keeping a Chevy at the end of the lease,” Cain said, “isn’t going to be as attractive as buying the Lexus at the end.”