Should I Buy My Car After the Lease Ends?
If your lease is almost over, you may have the option of buying the leased car. Considering the car market today, this may be a smart money move.
February 2, 2022
If your car lease is nearly over, you may be wondering what to do next. Should you return it and lease a brand new car? Should you purchase a car outright? Or should you buy the car that you’ve been leasing for the last few years?
There are many things to consider. This article will help you ask the right questions to make the best choice for your finances.
Should I buy my leased car? And what are my other options?
What happens at the end of a car lease?
Most car leases are valid for 24 or 36-month terms (2 to 3 years). After the lease ends, what happens when you return a leased car?
First, you’ll generally need to take the car into the dealership where you leased it. Then comes an inspection, and from there, you will typically have three options:
Trade in the vehicle and start a new lease. The new lease will typically be for a brand-new car, and the dealership will take your old leased vehicle to sell it.
Return the lease and leave without a vehicle. Your contract is over, so you‘re free to walk away without buying or leasing another vehicle.
Buy the leased vehicle from the dealership. The option of buying a car after the lease is also typically available. Details vary, so you’ll want to check your lease agreement.
Do you have to wait until the lease ends?
Many car leases allow “buyouts” (purchasing the car outright) during the lease.
In most cases, this ends the lease early, eliminating the monthly lease cost — and you can pay cash for the car or get a bank loan to finance it.
You’ll want to check the details of your lease, however. There may be fees or other expenses to consider.
Should I buy my leased car?
If you have a lease and you’re enjoying the car, why not just buy it?
Well, there are many things to consider here. Here are some questions to ask.
Do you like the vehicle?
It only makes sense to commit to purchasing the vehicle if you’ve enjoyed it and it seems to be holding up well.
How much is the buyout price?
Most lease agreements allow you to buy the car outright, and many list the specific buyout price on the original lease agreement. Others may not have a price listed, so you may need to contact the dealership for details.
Determine what is the residual value of a leased vehicle and use this information to decide if it’s a good deal.
Is the buyout price a good value?
What will the new monthly payments be?
Unless you can pay cash for the car, you’ll need financing — either through the dealer or through a bank. Ask your lender for the rates available to you to determine what interest rate you’d be paying on the loan and what your monthly payment would be. Is it cheaper to lease or buy a car outright? Read our Auto Loans 101 guide for more details.
Have you exceeded the mileage limits or damaged the vehicle?
Most leases limit how many miles you can drive each year. If you exceed these limits or damage the vehicle, you may be responsible for fees. If you buy the leased vehicle, you generally won’t need to pay these fees.
Buying a leased car in 2022
Given the car shortage affecting both new and used cars in the last year or two, there is one important consideration for buying a leased car in 2022.
If your lease has a pre-set buyout price, it’s likely a good deal on the vehicle.
If you leased a car two or three years ago, the dealership set the buyout price based on the current market conditions at the time and what they expected the car to be worth a few years down the road.
But nobody could’ve predicted a global pandemic and the shortages that came along with it.
Because of a global chip shortage, used car prices in the U.S. have been up roughly 40% since March 2020. That means if your dealership expected your vehicle to be worth around $20,000 when you signed the lease, the vehicle might be worth as much as $28,000.
This only helps you if the lease agreement has a pre-negotiated price on the car. Check the lease contract for details.
Pros and cons of buying a leased vehicle
Should I buy my leased car? Consider these pros and cons when making your decision.
Some of the benefits of buying a leased car include:
Keeping the same car
If you finance the purchase, your monthly payments may be similar to your current lease payments
You may get a reasonable price on the vehicle (this varies, however)
Avoiding any excess mileage fees that may be charged if you return the vehicle
Knowing exactly how the car has been treated
But, there are several drawbacks of purchasing your leased vehicle:
Maintenance costs may increase if you buy it
You’ll likely need to finance the vehicle, which means paying interest
You may have to negotiate the price if there isn’t a predetermined lease buyout price
You won’t get the latest model as you would with a new lease
Mastering your money
Whether or not to buy a leased vehicle is an important determination for your financial life. If you’re hoping to improve other aspects of your finances, here are some useful guides to help:
If you’re applying for a mortgage soon, read about how leasing a car might affect your debt-to-income ratio (and mortgage eligibility).
If you have an existing car loan or may take one out soon, read about when you should pay off your auto loan and when you shouldn’t.
If you’d like to start investing, read our investing basics guide for helpful resources.
If you have credit card debt to pay off, check out Tally†. Tally is a finance app offering a lower-interest line of credit that may help qualifying Americans pay off credit card debt more efficiently while saving on interest costs.
†To get the benefits of a Tally line of credit, you must qualify for and accept a Tally line of credit. Based on your credit history, the APR (which is the same as your interest rate) will be between 7.90% - 29.99% per year. The APR will vary with the market based on the Prime Rate. Annual fees range from $0 - $300.