How a lease buyout works
Every lease contract sets a residual value — the price your lender will sell you the car for at lease end. To complete the buyout you typically pay the residual plus a purchase-option fee (commonly $300–$500) and your state's sales tax on the buyout price. You can pay cash, finance the buyout with a separate auto loan, or in some states transfer the existing lease balance.
The buyout is a good deal when the car's market value is higher than the residual. With used-car prices still elevated relative to a few years ago, many residuals set when the lease was signed are now well below what the same car would cost on the open market — that gap is your built-in equity.
The formula
Total cash cost = residual value + purchase-option fee + (residual + fee) × sales tax. If you finance, the loan amount equals the cash cost minus your down payment, and your monthly payment uses the standard amortization formula: Monthly = P × i ÷ (1 − (1 + i)−n). See the methodology for details.
Example calculation
On a lease with an $18,000 residual, a $350 purchase fee, and 6% sales tax, the total cash cost to buy out is about $19,451. Finance the full amount at 7.5% APR over 48 months and you're looking at roughly $471/month and about $3,130 in total interest over the life of the loan.
When buying out makes sense
Buying out is worth it when the car is worth more than the residual, when you've gone over your mileage cap (you'd owe per-mile fees on turn-in anyway), when there's excess wear-and-tear you'd be charged for, or when you simply like the car and want to keep it. If the car is worth less than the residual, walk away and lease or buy something else.
Common mistakes to avoid
- Forgetting sales tax — in most states you owe tax on the buyout price even though you paid tax on lease payments.
- Financing the buyout at a high used-car APR without shopping multiple lenders.
- Buying out a car worth less than the residual — you're paying a premium for the same vehicle.
- Skipping the dealer-fee negotiation step — some captive lenders waive or reduce the purchase fee.
- Not checking your contract for early-buyout penalties if you're buying out mid-lease.
When the math favors buying out
Buyout makes sense when the car's current market value clearly exceeds the residual on your contract. With used-car prices elevated for the past several years, many leases ended with a built-in equity cushion of several thousand dollars — buy out, drive the car, and recoup the spread by selling later or simply by not re-leasing at today's higher monthly rates. It also makes sense when you've gone significantly over the mileage cap (you'd owe the per-mile fee on turn-in anyway) or when you'd face wear-and-tear charges that approach the equity built in.
When walking away is smarter
If market value is below the residual, the lessor is selling you the car for more than it's worth on the open market. Return it and either re-lease at current terms or buy a comparable used car at market price. Don't pay a premium just because the buyout is operationally easier than starting a new shopping process.
Financing the buyout
Most banks, credit unions, and online lenders offer lease-buyout loans that look like any other used-car loan secured against the same vehicle. Shop multiple lenders — the captive lender's buyout quote is rarely the best rate available. APRs on buyout loans typically run 1–2 percentage points above new-car rates.
Frequently asked questions
Is buying out my car lease worth it?+
Yes, when the car's market value is higher than the residual and you like the car. With used-car prices elevated, many residuals are now below market value, giving you immediate equity. If market value is below the residual, returning the car is usually the better move.
How is a lease buyout price calculated?+
Buyout = residual value (set in your lease contract) + purchase-option fee + sales tax on the buyout price. Some states also charge title and registration fees. The residual was decided when you signed the lease — it doesn't change based on current market conditions.
Can I finance a lease buyout?+
Yes. Banks, credit unions, and online lenders offer lease-buyout loans that look like a normal used-car loan against the same vehicle. Shop at least three lenders — captive lender quotes are often not the best rate.
Do I pay sales tax on a lease buyout?+
In most U.S. states, yes — tax is applied to the buyout price even though you paid tax on each monthly lease payment. A few states give you credit for tax already paid, so check your state's rule before assuming.
How do I know if my lease buyout is a good deal?+
Compare your total cash buyout cost (residual + fee + tax) to the same car's current market value (KBB or Edmunds private-party value). If market value is meaningfully higher than your buyout cost, it's a good deal; if it's lower, it isn't.
Reviewed for accuracy
Priya Shankar, CFP® — Reviewing Editor
Priya is a CERTIFIED FINANCIAL PLANNER™ who reviews AutoLoanWise content for technical accuracy. She works with consumer borrowers on debt strategy, credit, and large-purchase decisions.
. See our methodology for the formulas behind every result.