What Is a Lease Buyout?

At the end of your lease agreement, you'll have the option of purchasing your vehicle at a price called the "residual value." This is a lease buyout. If you have enjoyed driving your car, this may be a smart move for you. However, before you decide, crunch the numbers to make sure that you're getting a good deal.

Lease Buyout Terms

Within your original lease agreement, the company specified the residual value at the end of your lease. This is the amount that the dealership estimated the car's value would be after the lease term. It can be above or below the market value. Look at the current rates for comparable cars at used car dealerships. If your residual value is at or below the market value, then buying is smart. If it's higher, you may want to negotiate a better deal or return the car and buy a similar used car.

Negotiating a Good Deal

Rather than contacting your leasing company to let it know that you are interested in a lease buyout, wait until the company contacts you at the end of the term. Even if you are interested, you can act as though you are undecided -- if the company sees you as a motivated buyer, you're less likely to get a good deal. Explain that you are hesitating because you are not happy with the residual value that you'll have to pay. The company may lower the price or it may waive the fees associated with the lease buyout.

Third-Party Buyout

In some cases, the retail value of the car is significantly higher than the residual value that you owe. You may consider doing a third-party buyout, where you find a buyer willing to pay the retail value and pay the dealership the residual value, pocketing the difference. If you're going to do this, however, take care to avoid paying double sales tax -- you paying sales tax when you buy from the dealership and the buyer paying sales tax when buying from you. Some dealerships will facilitate this action for you, but others may charge fees, according to Edmunds.com.

Getting Financing

If you cannot afford to pay the residual value in cash, you can apply for financing. You will need to meet the same types of requirements that you would for a regular car loan -- good credit score and a positive lease payment history. If the residual value of the car is higher than the retail value of the car, expect to make a down payment on the loan, but if not, you may not need a down payment.