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What is a Lease Buyout?

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  • Written By: Malcolm Tatum
  • Edited By: Bronwyn Harris
  • Last Modified Date: 25 April 2019
  • Copyright Protected:
    2003-2019
    Conjecture Corporation
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A lease buyout is a type of financial strategy in which the consumer chooses to either terminate a lease agreement by fulfilling all the terms and conditions early, usually by making a lump sum payment to buy the leased asset outright from the owner. A similar process may occur when the expiration date of the lease has passed and the consumer wishes to make a lump sum payment to the owner in order to purchase the asset and become the new owner. While the option of a lease buyout is most often associated with the leasing of vehicles by businesses and individuals, the same general principal may also be applied in other settings, including real estate deals.

With a car lease buyout, the terms of the lease agreement usually include specific conditions for early settlement of the lease terms. This may include information on matters like deferring some amount of the interest and fees on the lease if the vehicle is purchased by a certain point in the duration of that lease. For example, if the lessor chooses to exercise the option to buy out the lease and buy the car outright before the halfway point in the lease duration, the owner may waive certain fees that would otherwise be due.

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The lease buyout may also involve exercising the option to pay a lump sum at the end of the lease agreement in order to secure permanent ownership of the car. Here, the lessor may negotiate a final price that takes into account all the lease payments made up to that point, and tender a lump sum payment to the car dealer. One of the advantages of this approach is that if the lessor has maintained the car well over the years of the lease, there is a good chance that the lump sum payment would be less than buying the used car outright from the dealer’s lot.

In some cases, lessors may choose to exercise a lease buyout because the car in question has not been maintained properly. Many lease agreements call for the vehicle to remain under a certain amount of mileage at the end of the lease period, as well as be free of any excessive wear and tear. Fees and penalties are assessed if the car is returned in less than acceptable condition at the end of the lease. When this is the case, the lessor may find that buying the car outright at or before the end of the lease will cost less than paying those fees and penalties. In any event, once the lease buyout is completed, the new owner is free to continue driving the vehicle for as long as he or she likes, use the car as a trade-in, or sell it outright to a new buyer.

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